ব্যঙ্গাত্মক বর্ণনা এবং ফরেক্সের প্রবেশদ্বার বিন্যাস

Economy runs while hiring lags

The US economy has experienced a breakdown in the customary link between economic growth and employment dynamics, a shift that could influence future decisions by the Federal Reserve, Deutsche Bank Research said in a note.

Analysts at the bank, including Matthew Luzzetti and Brett Ryan, note that before the COVID‑19 pandemic, the pace of economic growth and hiring in the United States displayed a strong positive correlation. From 2002 to 2019, that correlation stood at about 84%.

After the pandemic, the relationship weakened, which the analysts consider quite expected given the large shocks induced by COVID‑19. However, they say the persistence of the divergence over the past two years is unusual.

"Even as economic growth has strengthened and remained generally solid, hiring trends have stayed weak," the note said.

The analysts explain that the divergence has already had noticeable consequences for monetary policy. Last year, the Federal Reserve cut interest rates several times in an effort to support the labor market, despite resilient economic growth and inflation above the 2% target. Last week, the Fed left its key rate unchanged in a range of 3.5–3.75%. Deutsche Bank Research assesses that policy changes through the end of the year are unlikely.

Weak employment dynamics have also weighed on household sentiment, heightening pessimism about the economy, the analysts said.

They argue that resolving the gap between growth and hiring will be a key factor both for the Fed’s outlook and for the outcome of the US midterm elections. If the labor market strengthens and resumes matching growth, the Fed is likely to refrain from cutting rates until inflation clearly returns to target. In that scenario, an improvement in consumer sentiment could benefit Republicans in the November elections.

If economic growth slows following the labor market, weakness in employment is likely to persist. Under that scenario, the Fed may move to cut rates again to support jobs. Household sentiment may remain subdued, and Democratic prospects in the midterms may improve.

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