The drops in both new jobs and wage growth contained in a Department of Labor report released on Friday elicited cheers from financial world insiders.

“This is a really terrific jobs report in lots of subtle ways,” tweeted Neil Irwin, Axios’s chief economic correspondent. He said, “Job growth is soft-landingish” — polite econ-speak for saying growth is decreasing steadily.

This is a really terrific jobs report in lots of subtle ways.

Job growth is soft-landingish.

Labor supply looks to be rising.

Wage growth remains solid but not wage-price spiral alarming.

— Neil Irwin (@Neil_Irwin) January 6, 2023

“This looks like the right direction of travel re: jobs,” New York Times economic reporter Jeanna Smialek said on Twitter, above a chart depicting a steady decline in jobs. “But it’s probably not *as much* of a slowdown as the Fed wants, yet,” Smialek hedged, adding that “[Federal Reserve] Chair Powell is looking for notable cooling in wages” — the dip in wage growth depicted in the jobs report apparently not steep enough.

Others reacted to the news with even less restrained enthusiasm. “Wage growth … slowed a lot,” tweeted Harvard economics professor Jason Furman, declaring that it represented the “best reason for hope on moderating inflation.”

Even President Joe Biden welcomed the news, saying that “this moderation in job growth is appropriate,” after acknowledging that “average monthly job gains have come down from over 600,000 a month at the end of last year to closer to 200,000 a month.”

Last year, amid the economic recovery following the dips of the pandemic, the central bankers of the U.S. Federal Reserve launched a campaign of some of the steepest interest rate hikes in years in an attempt to tamp down inflation. By making money more expensive to borrow, rate hikes can reduce inflation by slowing down the economy and driving up unemployment.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Federal Reserve Chair Jerome Powell said in August. “These are the unfortunate costs of reducing inflation.”

Not all experts agree. Some argue that the medicine of rate hikes and their attendant costs to workers, including higher unemployment and lower wages, can be worse than the inflationary disease. Other dissenting experts say the primary, underlying causes of inflation — a pandemic, supply-chain crisis, corporate concentration, climate crisis straining agriculture — aren’t addressed by tighter monetary policy and that the pandemic-related inflation was always going to be transitory.

At stake in the debate is millions of Americans’ jobs. To tame inflation, former treasury secretary and economist Larry Summers has called for a year of 10 percent unemployment, far above what we have now and which would see millions of people put out of work. The Fed, for now, appears to be heeding that advice, albeit on a smaller scale — a scale that could grow depending on which side of the debate prevails.

Sen. Elizabeth Warren, D-Mass., has warned that Fed’s rate hikes “risks triggering a devastating recession.” Warren’s assessment was echoed by the Fed’s own research, which this summer warned that, in a past example, aggressive interest rate hikes in rapid succession resulted in the depression of 1920. The United Nations has also called on the Fed to stop its rate hikes, warning that it risks a “global recession.” The International Monetary Fund issued a similar warning, as did a World Bank paper.

Rate hikes can be an effective tool against inflation depending on its causes, but it is far from the only one. The inflation currently besetting the U.S. is being driven by forces beyond the control of the Fed, like supply chain problems and Russia’s invasion of Ukraine, Warren argued. (Princeton political science professor Thomas Ferguson identifies the same causes as well as another one: extreme weather events resulting from climate change.)

Instead of rate hikes, Warren suggested several other ways to bring down inflation, including fighting corporate price gouging with aggressive antitrust policies, bringing more parents into the workforce by subsidizing child care, strengthening supply chains by ending tax breaks for corporations that offshore jobs, and bringing down drug prices by allowing Medicare to negotiate them.

“As with any illness, the right medicine starts with the right diagnosis,” Warren has said. “Unfortunately, the Fed has seized on aggressive rate hikes — a big dose of the only medicine at its disposal — even though they are largely ineffective against many of the underlying causes of this inflationary spike.”

Warren has asked Powell, the Fed chair, how many job losses the central bank is willing to accept in its war on inflation. The Fed has no clear answer.

In a press release announcing further rate hikes last month, the Fed specified the inflation rate it was aiming for — 2 percent — but, in terms of employment, only vaguely claimed to seek the “maximum.”

In contrast to the 2 percent figure, the president of the New York Fed recently said unemployment could reach 5 percent this year — representing millions of people losing their jobs. Despite the Fed’s famous mandate to pursue both the highest employment and lowest inflation possible, the priority seems obvious.

Inflation has been steadily falling since July, buoying hopes that the “pain to households” that Powell warned about might subside. For now, though, it appears the Fed’s aggressive war on inflation is just beginning, despite growing warnings that it could trigger a recession.

An alarming but little-noticed report released by the St. Louis Fed on December 28 found that slightly over half of U.S. states are experiencing “recession-like conditions” that serve as a key indicator for a coming national recession.

“Huge downward revision to November wage growth,” Dean Baker, an economist at the Center for Economic and Policy Research, said of the new jobs report. An earlier report had suggested wages were rising again, but the finding was corrected in the latest report once better data became available. Dean called on the Federal Reserve to “hold the rate hikes please.”

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