Gary Cohn, IBM vice chairman and former chief economic adviser to President Donald Trump, warned that significant job losses are necessary to get inflation under control.
“We’re going to have to see job destruction if we’re really going to see inflation be curtailed,” Cohn said in an interview during Yahoo Finance's All Markets Summit on Monday (video above).
His comments follow September’s hotter-than-expected inflation print, which showed consumer prices rose 0.4% from a month earlier, and up 8.2% from a year ago.
Significant job losses is something Wall Street has been bracing for in recent months. At the Federal Open Market Committee press conference in September, Fed Chairman Jerome Powell warned that the jobs market will have to suffer for consumer prices to fall.
Despite his warnings, we haven't seen much evidence of a slowdown just yet. The unemployment rate fell to 3.5% in September from 3.7% the previous month, partly due to people dropping out of the labor force. Furthermore, there are still more job openings than workers available to fill those positions.
“We now have a smaller labor force population in the United States so businesses are having to pay workers more to attract them into the labor force which is inflationary,” Cohn added. “Wages go up, and we're in this inflationary cycle.”
Recent Fed projections showed expectations for the unemployment rate to climb to 4.4% in 2023, and potentially as high as 5%. If this in fact happens, more slack in the labor market would likely bring down wages as workers lose their bargaining power and therefore tighten their purse strings.
“The interest rate impact has not fed through to the business cycle yet,” Cohn added. “The Fed's going to continue to keep raising rates to try and break this cycle. They won't know they have broken it until long after it's broken.”
Seana Smith is an anchor with Yahoo Finance. Follow her on Twitter at @SeanaNSmith.