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St. Louis Fed VP: Inflation ‘is not being driven by wage growth’

St. Louis Vice President Bill Rodgers joins Yahoo Finance Live to discuss the August jobs report, inflation, the labor sector, Fed policy, and the outlook for wage growth.

Video Transcript

- The US economy added 315,000 jobs in the month of August, beating estimates after softer-than-expected data from ADP private payrolls and last month's outsized gains. While this print is unlikely to settle the debate of whether an economic recession is on the way, it could give the Fed some ammunition. Still, the softer-than-expected wage growth calmed the investor nerves, given the renewed pressure on rates from the Fed to cut down demand.

All right, so what's all this mean? Joining us now to discuss, we've got St. Louis Fed President Bill Rodgers. Bill, always a pleasure to get some of your perspective, your insights here. When you think about what we just broke down here and have been watching throughout the morning, the markets digest as well, what does this do? What does this signal for the Fed and what they may potentially have to wade through, even with some of the job prints that we've seen most recently come in stronger than expected during July, and in August as well come in better than expected as well?

BILL RODGERS: Sure. Yeah, thank you for that question. And thanks for having me again. And I just do want to say quickly that the views I express are my own and not my Fed president, Jim Bullard. I'm vice president in the bank. But I'm, more importantly, I'm director of the Institute for Economic Equity.

And so what I'm going to talk about are about today's report and what we've been seeing over the last few months and what I feel going forward, especially on this Labor Day 2022. We'll be talking about vulnerable workers and vulnerable communities. Today's report is a nice report for us to be celebrating Labor Day. As you shared, we saw strong increases, slightly below expectations, also suggesting there's a deceleration going on, but still strong growth.

And that growth has propelled the unemployment rate to rise, which is very counterintuitive. But it rose because people are still looking for jobs and being drawn into labor market. So all in all, a good report.

Finally, also in terms of the wage print, wage growth, the year over number is very strong. But compared to previous number estimates and then compared to price increases in goods, this is not-- inflation is not being driven by wage growth. It's being driven by price increases and those other factors that have been talked about.

- Bill, always nice to get some time with you. We, despite the headline beat, we did see some weakness in this report. We saw downward revisions to jobs for the prior two months. Where are you seeing some pockets of weakness in the labor market?

BILL RODGERS: Well, that's great that you asked that, because in the household survey, which my colleagues at the institute, we spend much of our time looking at, and in a blog post that's coming out today, my Labor Day message, one potentially cautionary tale here is that for Blacks, Latinos, for people with only a high school degree, their unemployment rates rose. But they rose because they weren't absorbed into the economy. They didn't get jobs.

And so what does that mean? Well, one story is possibly that we've been seeing job openings fall over the last few months. And the hope was that people would still get hired. But if we're seeing openings fall and unemployment rising and people not getting into those jobs, that's suggestive of a variety of structural barriers or factors that are hurting people.

The most notable one are women, women with children. We've known that during the pandemic and coming out of the pandemic that many of them have had difficulty getting childcare or even elder care. Blacks and Latinos, there's a long research history that has shown that when the economy starts to turn, they're the canary in the coal mine, that you start to see their unemployment rates rise, that you start to see them not being pulled back into the economy as quickly. And so those are two of my cautionary notes around this report.

- Bill, on the topic of wages here, we've been tracking very closely to see where real wages can keep up with the rate of inflation that has been experienced by so many people, and especially for the lower-income portion of the broader economy here, where those wages are so critical to keep up and also outpace inflation at the rate of getting left behind. So with all of that in mind, from what you saw in wages here today, even if we continue to stay in this same range, what does that signal long term? And what are some of the implications that you're tracking as well?

BILL RODGERS: Yeah, well, the number one thing that I can say about the Fed and the work here is the chair and the Open Market Committee, their job number one is to curb inflation, is to get it back to that target. And that's the most important thing. But in terms of my perspective as the director at the institute, I see it and the Labor Day message we're expressing and talking about is one of a choice.

We have a choice, that one choice is to invest in these removing these barriers that are mucking up the job-matching process versus stepping, standing back and watching the economy slow and unemployment rise and end up having to pay unemployment insurance to families and helping communities, end up having to help prevent evictions, end up having to help prevent the increase in food insecurity. So job number one is tamping down inflation. Job number two is for our leaders to make those proactive investments as opposed to those reactive investments. And that will solve the employment problem. And it will also address the wage issues that you asked about.

- Bill, one more, before we let you go, one more question. Restrictive policy from the Fed, what does that do to income inequality in this country?

BILL RODGERS: Well, and I don't want to-- I feel like I'm dodging your question. But I have to leave the policy conversation to my bank president and to the broader committee. What I will share is that I have done some research with a former Fed economist named Seth Carpenter, where we did look at historically what happens when tightening occurs.

And this is one reason why I'm very-- why we at the institute are so focused on vulnerable populations. And that is when the economy does slow down, these groups are more sensitive to increases in unemployment. And as I said, we have to work with all stakeholders, all parties involved here to tamp down inflation, but to also make those critical investments in and vulnerable people and vulnerable communities.

And if we can do that, that will grow productivity because we're keeping people in the labor market. We're drawing people in the labor market. Productivity is one of the two ingredients of economic growth, which is what we need to be focused on. Thanks for having me.

- Of course. Bill Rodgers, vice president at the Institute for Economic Equity at the Federal Reserve Bank of St. Louis, always good to see you. Have a great weekend.

BILL RODGERS: Likewise. Thanks. You too.