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Federal Reserve Speeches·

Waller, The Economic Outlook and Some Thoughts on Labor Market Dynamism

  • The U.S. economy is growing strongly with real GDP rising 3.4% in the third quarter, supported by robust consumer spending & business investment in AI-related equipment.
  • The labor market is stable with an unemployment rate of 4.1% & roughly balanced labor supply & demand, yet characterized by a "low hire, low fire" equilibrium that raises concerns about reduced market dynamism.
  • Reduced labor market dynamism may stem from an aging workforce, higher education levels, economic uncertainty regarding AI & tariffs, or a post-pandemic lag in job-switching.
  • Low hiring rates correlate with longer unemployment spells & higher unemployment among new labor force entrants, potentially hindering long-term productivity growth.
  • Inflation remains too high at 3.7% year-over-year for PCE & 3.1% for core PCE, with broad-based price increases in core goods & market-based services.
  • Federal Reserve research suggests AI buildout costs & elevated energy prices may sustain inflationary pressures into 2027, challenging the view that energy shocks are temporary.
  • The speaker supports a 25 basis point interest rate increase at the December FOMC meeting but warns that a 50 basis point hike may be necessary if October CPI data remains elevated.
  • The speaker voted to hold rates steady at the recent meeting to allow market expectations to fully price in tightening, emphasizing that the credibility of future hikes matters more than the timing of each individual move.