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Employment Report: Beneath July's Mixed Numbers, Job Market Shows Fragility

Employment Report: Beneath July's Mixed Numbers, Job Market Shows Fragility

The nation’s payrolls surprisingly fell last month, down 23,000, driven by large losses in government jobs (and not federal, as you might expect, but local education). Revisions to payroll jobs were also negative, down 103,000 cumulatively for May and June, taking the average monthly job gains over the last three months down to a flimsy 20,000 jobs per month. That’s well below most estimates of the “breakeven” rate—the number of jobs needed to keep the jobless rate from rising.

And yet the unemployment rate ticked down to 4.1 percent. Whassup with that? First, this is a noisy indicator, and the breakeven mechanics requires averaging over numerous months to pull signal from noise. But re the monthly tick down, it happened for the wrong reasons: in the survey which tracks unemployment, both jobs and the labor force contracted in July. So that tenth-of-a-point tick down is not a sign of a tighter labor market.

My main message, however, is do not panic! Especially regarding the negative payroll number, the fact that it was partially driven by a 50,000 decline in local government education jobs, in a summer month, makes me wonder if there’s a seasonal adjustment problem here.

On the other hand—I haven’t used up my hands yet, have I?—as a long-time job-market-data whisperer, I’m not dismissing this report. It adds a data point to some longer-term trends that reveal fragility under the surface of what looks like a fairly tight labor market.

First, taking out the government sector and looking only at private-sector, three-month averages show flat job gains for about year, interrupted by a few better months earlier this year.

Second, labor force participation, which as noted, ticked down last month, is down by 0.8 percent over the past year. Yes, that series includes aging boomers and much weaker immigration, but it also reflects weaker underlying labor demand.

If we shift to prime-age workers (25-54), this labor force indicator along with the employment rate looks better, but there was a big dip in June that only slightly reversed in July.

Third, wage growth has decelerated. These monthly jobs report contain hundreds of statistics from two different surveys. As noted, trends in the key, high-level stats, like jobs added and movements in the unemployment rate, give one a decent sense of the tightness or slack the job market.

But nominal wage growth is also a helpful indicator in that regard. It’s by no means fully a function of labor market conditions—it reflects underlying productivity growth, employer versus worker bargaining clout, discrimination by race, gender, age, etc., minimum wages, tax policy, non-wage benefits, and more. But it definitely has a cyclical component as well, wherein less slack tends to correlate with faster nominal growth.

In July, private wages were flat on a monthly basis and up 3.2 percent, year over year. That’s the lowest yearly growth rate since the pandemic. Here’s both all private hourly wages and mid/low-wage.

So as not to be overly dependent on one survey, I also like to gaze at this wage tracker from Goldman Sachs Research, a mash-up of many different wage series (this doesn’t include today’s data). The deceleration is clear here as well, , as well as the above-noted cyclicality.

Perhaps most importantly from the perspective of consumers, these wage rates are not reliably outpacing inflation, which has been jumping around a lot due to energy prices and the war, but continue to growth at yearly rates well north of 3%.

Bottom line, 4.1 percent unemployment is low unemployment, any way you cut it, and that’s good. But the job market is more fragile than is usually the case at such an unemployment rate. As best we can tell, employment growth is not great—low-hire, low-fire prevails. Labor force participation looks a bit saggy, and wage growth shows little of the pressure I’d expect if things were all that solid in this space.

Sorry to be the many-handed economist, but it’s a somewhat foggy picture.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please subscribe to his Substack, from which this is reprinted with permission.








Trump

Pause From Doomscrolling -- And Be Hopeful As MAGA And Trump Swirl The Toilet

I’m content to doom scroll with anyone who wants to go there. This country is obviously in a lot of trouble, as this corrupt, self-dealing, unchecked president is barely half-way through a term that’s unleashed murderous xenophobia, war, and—a key subject of this ‘Stack—terrible economic policy.

But I’m not immune to hope, which I keep seeing in a variety of places. In a word, that terrible policy record has not gone unnoticed by the majority of the American people/electorate. Ergo, Trump’s approval rating is tanking. Here’s a good summary.


Yes, he’ll always have MAGA, but the New York Times tells us that, at least in terms of media interest, they too may be lagging.

For the record, I wouldn’t make too much of this. Given the strength of their psychological bond (discussed below), I would never count on MAGA turning on Trump. But, electorally speaking, MAGA’s too small to do much by itself. At least in a national sense, and increasingly at the state level too, it needs the numbers from the larger swing coalition that’s largely motivated by affordability concerns and is happy to cycle through incumbents until someone actually helps them.

Bottom line, even with Trump off the ballot, the Rs have a midterm problem. And, if that holds, it’s just plain good news for America.

Then there’s the fact that some spineless Rs, like Sen. Cornyn, now that they’re out of the running, are standing up to some of Trump’s most egregious actions and nominations. FTR, I have zero sympathy for these lame ducks. They repeatedly betrayed their oaths to enforce the Constitution, until doing so become costless. And Cornyn, e.g., has an awful record: anti-choice, tax cuts for the rich, terrible SCOTUS votes, etc.

My point, however, is that he’s just the typical establishment R that proliferated before Trump took over, and as soon as that constraint was lifted, he snapped back to his old self. And I doubt he’s alone. That’s not particularly comforting, I grant you, but it signals that Trumpian damage—his “ownership of the party”—though it will absolutely postdate Trump, is not permanent.

Will the Ds be the beneficiaries of this discontent with Trump and the Rs? Certainly in the narrow midterm sense of the incumbent party doing badly, especially when the country’s dominant mood is this negative, and, at least as far as winning back the House is concerned, polling and betting markets suggest those odds are favorable.

But there’s a big difference between benefitting from anti-incumbency and lasting, foundational support. That requires delivering. And here’s where I think some of the Democratic Socialist (DSA) candidates have an interesting edge (“some” is doing important lifting here—the DSA candidates more focused on tearing down the establishment than helping constituents could prove to be electorally problematic in many districts).

Polls show voters expressing more favorable views re socialism. As I’ve written before, there are many reasons for that, largely born of a sense that establishment Ds have failed to deliver or to hold Israel to account for its actions in Gaza. In essence, people are looking for a new political force that looks like it might genuinely fight on their behalf, while reinstituting basic human rights that have long been violated. That certainly defines Mayor Mamdani’s success, and the fact that he’s starting to deliver further seals the deal.

There was a time when Trump and MAGA played this role (the fight-for-you part, not the human rights part, of course), but that was never going to work. Trump’s a fraud who never intended to deliver on his affordability promises. I’ll admit to being surprised that he’s so energetically turned that dial the wrong way—his policies are currently adding at least a point to inflation!—but as his polling shows, a lot of people looking for economic relief realize they bet on the wrong pony.

But second, MAGA and DSA motivations are fundamentally different. MAGA is, at root, a psychological movement, motivated by retribution against a world that’s always looked down on them. This is why Trump is such an effective standard bearer for them. He links to them though a titanium-strength chain of genuine empathy, because he too resents the fact that he’s always been viewed as a carnival-barking fool by elites.

DSA—and I’d put the labor-oriented Ds of old in the same bucket—is at root motivated by economic justice. Their theory of the case is not anti-market, which is why I don’t think the commie spitballs will stick. It’s that the benefits of market outcomes are not reaching enough of the folks who generated those outcomes. The bakers aren’t getting a fair slice of the pie they’re helping to bake (technically, this shows up as imbalanced factor shares—labor share down, profit share up).

Bottom line, this is all pretty simple. A decisive group of swing voters that tend to determine many electoral outcomes these days is looking for economic help from whomever they believe will deliver it. Trump has failed to do so, so they’re looking elsewhere. Half the battle for the Ds is convincing them they can make a positive difference in their lives. The other half is doing so.

Behind Tomorrow's Federal Reserve Decision, A Delicate Economic Balancing Act

Behind Tomorrow's Federal Reserve Decision, A Delicate Economic Balancing Act

They just keep comin.’

I’m talking about those FOMC (Federal Open Market Committee) meetings that take place about every six weeks in the big boardroom at the Federal Reserve’s headquarters in Washington, D.C.

The committee is meeting as we speak, and will announce their rate decision tomorrow at 2pm ET, as per usual, followed by a presser with Chair Warsh, his second since he was confirmed. Given Warsh’s campaign to do a lot less telegraphing about how the Fed is assessing the economy and the monetary policy path, there was some question as to whether Warsh would keep these every-meeting pressers going. But, at least for now, he’ll evade answer questions from the press tomorrow at 2:30.

(Note to the chair: You’re not fooling me, Kevin! Your strategy, which I grant you is clever, is to be so opaque and elusive at these pressers that the reporters give up and the markets tune out. FTR, that could work! Though it does leave a lot of investors scratching their heads in ways that seem sub-optimal to me, as I stress below.)

The big question, given inflation’s persistence above target, is will the FOMC come off of neutral and raise the interest rate they control. As I write, the market probability of a 25bps hike is 36%, up 10 ppts from a week ago.

In this brief note, I’d like to talk about the macroeconomics of the Fed’s balancing act right now, as we are in a somewhat weird macro/monetary moment. I wouldn’t call it stagnation—slow growth with high inflation—because growth is pretty good. Expectations for Q2 GDP, out later this week, are tracking around 2% (though GDPNow is at 1.6%). Job growth has picked up lately, and is probably a bit above breakeven (the number needed to keep unemployment stable). Wage growth, at around 3.5%, nominal, is a bit low relative to productivity, meaning no inflationary pressure there.

In other words, no macro overheating, yet inflation remains elevated. The figure below shows core CPI and core PCE, with a dot for the latter’s June value (also coming later this week), expected to come in at ~3%, a point above target. And that’s before energy prices, which bleed a bit into the core, picked up this month as Trump’s Iran war heated up again.

This puts us in a familiar place, one I’ve personally lived through in the Biden years, with good but not overheated growth and high inflation, in this case—a stark difference with the sitch back in my day—due mostly not to exogenous shocks (pandemic-induced supply chain disruptions), but to Trump’s inflationary policies, including tariffs and the war (there’s also demand-side inflationary pressures from AI spending).

Of course, supply chains are not as battered now as they were then (see figure), but they’re clearly elevated. And isn’t the Fed supposed to “look through” that sort of thing? Doesn’t that militate against raising rates?


To an extent, yes, for two reasons. One is that such shocks tend to dissipate. Tariffs, like any tax, should give a one-time bump to the price level and then underlying inflation takes over. And the war could end. The problem with that thinking, however, is that it ignores the elephant Orange Menace in the room. Trump can’t let the tariffs rest anymore than he can extract us from his war of choice.

The second reason the Fed might be averse to hiking into mostly supply-shock driven inflation is that it takes too much damage to the economy’s demand side to blunt supply-side inflationary impacts. As GS recently put it: “…a key lesson of recent years is that the effects of supply shocks on inflation are often large, while the effects of changes in resource utilization [demand] are moderate.”

They cited a recent Yellen speech underscoring this point, and Janet knows a bit about this:

“Monetary policy cannot tame supply-driven inflation without exacting unacceptable unemployment costs.” Those steep costs, she added, lie behind the standard central bank wisdom that “Looking through supply shocks should remain the default strategy unless inflation expectations are at genuine risk of becoming unanchored.”

There are numbers to back up this thinking. Below you see GS’s basis-point impacts of supply shocks vs. demand shocks (a one ppt higher unemployment rate) on inflation. They’ve got the tariffs adding about 75bps and the war, about 40bps, so 1.15 ppts higher inflation. Then, on the right, they’ve got one point more unemployment reducing core PCE inflation by just 15bps, averaging over a few studies. Do the math and that’s far too much unemployment to offset Trump’s supply shocks.

But, my fellow Fed-watchers, the story does not end there. I put heavy weight on Janet’s caveat: “…unless inflation expectations are at genuine risk of becoming unanchored.”

If you’re on the FOMC, there’s no way you can be cavalier about that warning. Eyeball that first figure above and you’ll see that core inflation has exceeded the target for years. It’s fine, in specific, time-limited cases to call “supply-shock…nothing to see…move along folks.” But this isn’t that. David Mericle, GS’s Chief US economist put it exactly right in a recent podcast:

…they’re done litigating what exactly is causing inflation, asking the question of whether or not it’s appropriate to look through the different factors causing high inflation. If we continue to see high inflation, many of them feel like at this point we really need to respond to that because this has just gone on for too long, and I think everyone agrees that at some point, in principle, even if this is a long series of one-time supply shocks, it would become dangerous. It would risk making people a little bit too accustomed to high inflation and make it potentially take on a life of its own.

So, I don’t think they hike tomorrow, and based on the economic analysis above, I wouldn’t go there. But I would hope they lean into a hawkish bias in the statement. I additionally hope Warsh puts aside his man-of-mystery schtick and gives some version of the above analysis in his presser tomorrow.

Oil Shipments Can Avoid The Strait Of Hormuz, But No Sooner Than 2028

Oil Shipments Can Avoid The Strait Of Hormuz, But No Sooner Than 2028

In a recent episode of the New York Times podcast, The Daily, journalist David Sanger spoke of Iran’s two leverage points against the United States: one is the nuclear threat, and the other is the Strait of Hormuz:

The second piece of leverage they have is the ability to cause havoc in the world economy and world energy markets…that is not necessarily a lasting power for the Iranians. You’re already seeing countries figure out how to get energy elsewhere. Over time, you’re going to see more pipelines built to avoid having to send oil across the Strait. The Saudis have already reactivated an unused pipeline they had to route around the Strait.
So the Iranians know that this is not going to be a forever weapon. But it’s pretty good for right now.

In what should go down as the more egregious missteps in the history of foreign policy, this leverage point was a gift from the Trump administration, whose unwarranted self-confidence and ignorance of the region taught the Iranian regime that they had this weapon.

But I agree with Sanger that it is not a “forever weapon.” Just like you’d learn to avoid the route to school where bullies take your lunch money, the energy exporters of the Gulf are starting to make other plans. Let’s take a brief look at what alternatives exist and when they might come into play.

BLUF: GS Research estimates “that enough pipeline capacity will likely be added in the Mideast region to insulate over 45% of the pre-war level of Persian Gulf producers’ exports by end-2027 and more than 60% by end-2028 from any potential future Hormuz shocks.”

How long does it take to build a pipeline? GS doesn’t have that large a sample, but the median construction time is 2.5 years.

The researchers estimate an “accelerated scenario,” where regional producers, motivated the fact that both sides are dug in and any agreement is likely to be as shaky as the last one, step on the gas to speed up pipeline production.

The Saudis and the UAE already are already rerouting about a third of the pre-war supply, and under this scenario, 75 percent of the flows are rerouted by the end of ‘28. Under GS’s conservative scenario, that flow share falls to 45 percent.

If you’re thinking ‘28Q4 feels far away and a lot can happen between now and then, I agree. And I’ve got another idea to help reduce Iranian leverage: shift to renewable energy sources. Every time someone presses start on their electric vehicle, it’s a blow for the oil producers and a ding to Iranian leverage in the Strait, especially, of course, if the electricity is derived from clean sources, which is fast becoming a highly viable option in terms of price-points.

But one thing I’ve learned in many years of tracking global flows is that supply chains will adapt. Now right away, and price effects arrive much sooner; in fact, they’re the motivator for the alt routs. But it’s a good example of the kind of ripple effects you get when you throw a big, dumb boulder in the water, as the Trump admin has done with this war.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please subscribe to his Substack, from which this is reprinted with permission.


Centrist Democrats Versus Insurgent Socialists Is A Fight Not Worth Having

Centrist Democrats Versus Insurgent Socialists Is A Fight Not Worth Having

Whenever I encounter a person, media report, or podcast that’s wound up about socialists taking over the Democratic party and thereby winding down capitalism as we know it, I find myself somewhere between puzzled and eye-rolly.

The main reason for my response is that our economy has always existed on a continuum between pure free markets and deep market interventions by the public sector. There’s Social Security, an intergenerational transfer program that is highly valued by those who identify as die-hard capitalists. Those same capitalists are generally comfortable with Medicare, public infrastructure, laws that protect their property, health, and safety, rules that structure markets, and so on. Taken together, expenditures on Social Security and Medicare amount to about nine percent of GDP. When it comes to such “socialism,” we’re more than a little bit pregnant.

Where we locate on that continuum is a dynamic process driven by the general degree of comfort with the status quo. And today, there is—as there should be—great discomfort among the vast majority with the status quo, in which case we should expect movements along the continuum.

But why move left vs. right? Surely, because of the obvious failure of Trump’s right-wing, faux populism. He ran on making life more affordable than under Biden but to the extent that he’s done anything in the affordability space, he’s pushed hard in the wrong direction. He’s exacerbated inflation, leading to higher interest and mortgage rates than would otherwise prevail, cut taxes for the rich, and partially offset the resulting debt costs by cutting health coverage and nutritional supports for economically vulnerable families. Last week he refused to sign a bill to help, at the margin, increase the supply of affordable housing, because his Republican allies have been unable to pass a vote to rig forthcoming elections (not that they didn’t want to, to be clear, but that they couldn’t get the votes to override a filibuster).

So I don’t think anyone should be surprised that the move along the continuum away from the status quo has been to the left. At the same time, I see no reason for Ds to overreact to this. Mamdani, to take exhibit A in this faux war, didn’t run on socializing the means of production or getting rid of market-based pricing. He ran (in part) on more affordable child care and housing, paid for by higher taxes on the rich.

The Wall Street Journal teed the issue up thusly:

They described the “insurgents” as “[r]unning on a tax-the-rich platform that would provide more services to working Americans, as well as on calls to separate the U.S. from Israel and “abolish ICE.”

First, I challenge you to find a Democrat of any stripe who doesn’t want to provide “more services to working Americans,” and the majority, left and center-left, would raise taxes on the wealthy to offset the costs. Mainstream, centrist Democrats complained bitterly, and justly so, when Trump and the Republicans extended their tilted, regressive tax cuts. Given the actions of the Netanyahu government, that part of our historical status quo must also change, something we’re hearing a lot more from moderate Democrats (and moderate Republicans).

The ICE call is trickier because for many voters, it suggests opening the borders to undocumented immigration in ways to which most Americans, and most Democrats, object. But it is clear to me and anyone else paying attention that we must abolish the unchecked, murderous power of this corrupted agency. I doubt there are many Americans (to be clear, I know there are some; in fact, a nontrivial minority) who are comfortable with the fact that the killers of Alex Pretti and Renée Good—and the killers’ enablers—have come nowhere close to being held to account.

I don’t mean to downplay the socialism label, which is surely notable. And I do think it expresses a frustration with current day, U.S.-style capitalism, a system that is currently and massively rewarding tech oligopolists who blithely pronounce that their latest and greatest invention is going to dis-employ large swaths of the workforce. Would you expect a regular, not-particularly-ideological person, struggling to make ends meet, whose grown kids can’t afford a home, while the deeply corrupt president takes equity shares in private companies, to stand up and applaud today’s capitalism? Or might you expect them to be open to a different offer?

So, let’s talk about that offer. Because this, not the label, is what will ultimately matter. If Mamdani and the other new-wave Democratic Socialists can deliver on the affordability and social justice agenda where status-quo purveyors—in both parties—have come up short, then they should and will win. If they fail, they’ll be kicked to the curb like every other incumbent these days.

In this regard, there is solid logic to the idea of collecting more tax revenues from those who’ve benefitted most not just from market forces (often juiced by regulatory protections—see Baker’s work on patents and monopoly power) but from decades of high-end tax cuts, and use some of those resources to offset the affordability crisis facing middle and low-income families.1

Rent control, on the other hand, sounds good to stretched renters and is a rare housing policy that helps people today vs. years in the future when affordability policies (like those in the ROAD Act) finally lead to added housing supply. But it has a track record of doing more harm than good. A lot of landlords are also stretched, and the rent freeze will make it harder for them to maintain upkeep. Worse, evidence shows rent control to lead owners of rental units to get out from under the freeze by converting to condos.

Still, good for Hizzoner for delivering on his campaign promises, in this case a two-year rent freeze on 40 percent of New York City apartments. I worry this one will have unintended consequences, and if I’m right, his administration should unwind it early.

That last part seems important to me. Again, forget about the names and labels. The future of democracy and the potential for getting back to functional governance requires a lasting political coalition, and that can only be built by delivering help to the people who need it the most. If you ran on a rent freeze, that go ahead and try a rent freeze. But if it backfires, quickly explain to your constituents that it isn’t working, you’re ending it, and you’re moving on to plan B, followed by, if necessary, plan C (see CAP’s plan for direct rent relief; it’s a federal plan, but aside from Trump, there’s actually bipartisan interest in addressing the shortfall in affordable housing).

Remember what Roosevelt said in 1932, another period when capitalism’s flaws were blatantly transparent: “The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something."

One last point about this alleged internal attack by socialist insurgents. As I’ve said, I see no such thing but instead see earnest politicians, and in Mamdani’s case, a highly skilled politician, recognizing that the status quo is broken and reaching for alternatives.

But we do not live in a political vacuum and the right will use the socialists’ wins to try to scare the broad electorate. Their leader posted this on social media:

The Communists are finally making their move. I’ve been waiting and preparing for this for a long time. It’s easy to be a Communist—All you have to do is say, ‘I’ll give you everything,’ but that means you’re taking it away from others that have earned it.

I’m not a political advisor, so take what follows with a shaker of salt. But there is, I believe, a way to break this attack. It starts by recognizing the obvious point that what works in New York City won’t work in most other places. But if it stops there, we’re sitting ducks. Remember, the fact about contemporary Republicans is that they’re awful at governing but a lot better than Democrats at getting elected, largely through fear tactics and pitting people against each other, a strategy as old as politics itself.

The key to winning in this period of unaffordability, chaos, fear, and heightened inequalities is not for Democrats to fight over the socialist, capitalist, centrist or leftist labels, but to connect with voters on how we’re going to help them and equally importantly, on how the other side has failed to do so and still has no idea what to do other than to try to scare people away from new, younger faces with bold, new ideas.

Trump and his reckless, corrupt, and inept enablers promised they’d help people, but clearly they lied, and now, when they’re not engaging in self-enriching grift and graft, they’re name-calling to try to distract us from their blatant failures.

But we know who the enemy is. It is the status quo. The polling, both electoral and consumer sentiment, couldn’t be clearer on this. And to shout “commie!” or “socialist!” at someone with potentially credible ideas on how to wield public policy to help solve real problems is to defend the status quo. Full stop.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please subscribe to his Substack, from which this is reprinted with permission.



1
Warsh and Trump

Despite Troubling Signs, Warsh's Smooth Fed Debut Stays Course On Rates

I found the new Fed chair’s debut to be fascinating, comforting, and worrisome. Which is in itself interesting because Chair Kevin “Taskforce” Warsh (“Task” for short) talked a lot but said very little of note. Here are my takeaways.

What did the committee do? Not only did they hold rates steady, as expected, but there was a more hawkish tilt to their expectations re future rates. Compared to their last meeting, the committee expects the interest rate they control to be higher both this year and next.

This change can be seen in the “dot plot” wherein the 19 committee members anonymously say where they think rates will need to go. Except there were only 18 dots for ‘26 and ‘27 and 17 for ‘28. Chair Warsh told us he’d abstained and someone else apparently joined him for ‘28.

I’ll have more to say about his abstention in a moment, but this hawkish tilt takes me to my next point.

I said “worrisome” above. Why? The theme of the statement, the dots, and Warsh’s presser were all, quite reasonably in my view (this was part of the comforting part), about how the economy and labor market are doing pretty well, but inflation remains high and sticky. Even with Trump looking over his shoulder, Warsh would have been hard pressed to oppose the committee’s neutral/tightening bias. That’s just where the inflation data are right now.

But “Task” isn’t new to this neighborhood, and I’ve long argued he just played a dove to get the job. That’s why I was struck—and maybe kinda over-reacted—to the FOMC statement a few minutes after its release:

The rest says: “...so no need to got there. But knowing Warsh's proclivities in this regard, I don't like it.”

Here’s why we should be nervous that Warsh will consistently down-weight the full-employment side of the mandate relative to the price-stability side:

—He’s long been a hard-money guy who worries more about inflation eroding asset values than unemployment eroding bargaining power and paychecks.

—He barely referenced the employment side of the mandate in his confirmation hearing.

—He hired Paul Winfree to be a temporary adviser as he settles into the new gig. This is the guy who wrote the (generally bonkers) Fed chapter in Project 2025, which calls for getting rid of the full employment part of the mandate.

Like I said, this concern isn’t new, and I tend to overreact when I think someone is threatening full employment conditions—a personality flaw for which I emphatically do not apologize. But this potential bias bears close watching.

What else did I find comforting? That would be the fact that Warsh didn’t come out swinging, going off on his colleagues for their tightening bias, signaling Trump, as Stephen Miran did, that he would push for cuts, regardless of the data. He praised his FOMC colleagues and the staff, and was generally highly diplomatic.

Now, if readers who know my proclivities conclude that my comfort should be Trump’s discomfort, I agree. This was a hawkish meeting, more so than expected, and Warsh went along with it. If Powell did that, Trump’s thumbs would have been spewing fire on social media, but he held his fire yesterday.

I took this as a win for Fed independence, but it’s way too soon to conclude that we’re safe in that regard. Still, you know my mantra: A bad day for Trump is a good day for America.

Anything else from the debut? Yeah, a few things.

—I’ve argued in recent posts that I take Warsh’s point how an excess of Fed communication isn’t helpful and can be harmful, leading markets and Fed watchers to overreact to stray voltage. But after yesterday, I’m worried he will push that too far, providing too little information in ways that could lead to unnecessary volatility and the return of the Fed-guessing-game that “forward guidance” was designed to end.

The statement was too bare bones, I thought, and Warsh wouldn’t answer any questions about where he thought things were headed, providing us no information on his “reaction function,” meaning how he and FOMC are processing the data with regard to rate movements. Whenever he was asked a question about this, he told us that he’d be setting up a taskforce to look into that. It became a comic tag line.

I doubt I was the only one who missed Powell’s plain speaking, his earnest efforts to clearly explain how he and his colleagues were thinking about things. In a word, Warsh was really quite opaque, and if that continues, it will generate problems born of insufficient communication.

—I’ve been to this taskforce rodeo many times, and have even led one or two. The majority of taskforces do little; they’re set up to give the appearance of doing something about a problem for which you don’t have a tractable solution. Some, however, yield important, actionable results. My prior in this case is that most of the many taskforces that Task announced yesterday won’t change much, with the exception of the communications/forward-guidance one.

That’s enough for now, and we’ll have ample time to scrutinize the new chair. I’m glad he didn’t come out swinging and I appreciate the seriousness about getting inflation back to target, especially with Trump lurking in the background. But I’ve got serious concerns that warrant close watching.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please subscribe to his Substack, from which this is reprinted with permission.


Trump's Murky Iran Ceasefire Won't Instantly Restore Global Oil Supplies

Trump's Murky Iran Ceasefire Won't Instantly Restore Global Oil Supplies

Maybe this time’s a charm.

Given the dearth of reliable spokespersons and Trump’s endless claims that the war is over, it’s hard to know the durability of the current agreement to cease hostilities and negotiate an end to the Iranian conflict. There are many places to read about these developments so I won’t review them here. Trump will surely be claiming victory, regime change, etc. but the deal he’s accepting will be no better than what prevailed prewar, not to mention a key point of this post regarding what Iran has learned from this conflict.

Neither will I repeat my post from a few weeks ago, raising what I still believe is the critically important question of what was this war for.

If what we’re hearing about the negotiations to end the war is correct, then everyone from policymakers to pundits to voters—especially voters—must ask the questions “What was that for? What did thousands of people die for? Why did the global economy have to undergo a massive disruption, elevating prices and interest rates? Why did the US have to further lower its international stature by not only getting dragged into this war, but by not winning it in any recognizable way?”

Instead, let’s briefly discuss—with some good pictures—what we might expect re the recovery of energy and energy-adjacent markets if and when transit through the Strait of Hormuz resumes.

The bottom line is that it will likely be months before prewar traffic resumes. First, there are three timing issues: it takes time to clear the mines from the sea. Next, the insurers need to believe this time is for real. Then, there’s infrastructure rebuilding. Second, physical inventories are very low, such that any hiccups could lead to sharp price spikes. Third, after the human costs, the biggest fallout from the war was that Trump has done something no other president has: he taught the Iranian regime that it could shut down global commerce.

So, yes, I’m happy to see these recent declines re oil and gas prices, but let’s keep it real. These partial gains—I don’t expect we’ll see the pre-war gas price this year—are perfectly akin to how your headache would go away if you stop banging your head against the wall.

The fact that global physical inventories are just about to fall outside their historical range (see figure below) was surely a motivator for Trump relaxing his demands and ending the war, if that’s really where we are. The physics of oil inventory management, according to one expert, is that “Whenever you get to tank bottoms, the whole operation gets bogged down” (that’s because sludge collects at the bottom of storage tanks).

One related problem for the US is that war-related drawdowns have left us at the historical low end of our Strategic Petroleum Reserves. The figure below is through June 5, but the Wall Street Journal reports if the admin follows through on its current release plans, the inventory will fall to 243 million barrels which would be the lowest on record. Already, this reserve is in bad shape for hurricane season.

So, what should we expect? Here’s the GS energy-research team’s latest forecast, along with market expectations (“forwards”). The base case drifts down but remains elevated compared to prewar levels. The most benign case factors in a faster recovery than I’ve emphasized above, along with weaker demand.

There is a great deal of Trumpian damage that will persist once he’s gone, but a strong entry on that list is the fact that his actions have bequeathed this violent, authoritarian, theocratic Iranian regime with a global flex-point: he’s shown them that they can, at least for now, shut down a fifth of the world’s energy flow using missiles and cheap drones. It’s far from costless for them to do so, but that’s one of the problems with such regimes. They don’t suffer. Their people do, and they care little about that.

I said “at least for now,” and that’s important. Two useful developments have occurred due to the war. One, gulf suppliers have learned that they’d better develop alternative supply routes (see figure), and two, consumers have been reminded of the opportunity costs of owning gas-powered cars. If EVs were more affordable—see my letter to Trump on one way to make that come true—a lot more drivers could significantly insulate themselves from fossil-fuel geo-madness while improving the environment.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack, from which this is reprinted with permission.

As Trump Losses Accelerate, Are Republicans Finally Backing Away From Him?

As Trump Losses Accelerate, Are Republicans Finally Backing Away From Him?

In a brief respite from the usual econonic analysis on this page, let us count the recent losses for our benighted president:

—With a 215-208 vote, the House passed a measure instructing the president to either withdraw U.S. forces from Iran forthwith or win Congressional approval to continue the conflict.

—Enough Republicans came out publicly against his $1.8 billion slush fund for January 6 rioters that the measure appears to be dead.

—His ballroom funding appears to be in trouble.

—His preferred candidate in Iowa’s Republican primary lost.

—He’s got to take his name off of the Kennedy Center.1

—Senate Republicans appear to be balking at his nominating “little Trump”—Bill Pulte—to be his Director of National Intelligence as the man has zero experience in such intelligence. Or any other kind of intelligence. His sole qualification is that he’s been Trump’s bulldog; this is the guy that cooked up the attack strategy on former Fed chair Jerome Powell, which, for the record, totally backfired on the administration.

I’m sure this is a partial list—it’s just off the top of my head (and I didn’t even mention all the artists who dropped out of his July 4th concert). Head over to the Contrarian for a much deeper dive. What I’d like to do here is noodle a bit on what it all means.

First, let’s recognize that something has changed. I just noted that Senate Republicans are balking at a terrible nominee. But they’ve confirmed dozens of terrible nominees. Has Trump become some kind of lame duck? Has the Republican party found its spine?!

No, on the spine thing. Part of what we’re seeing is truly pathetic opposition to some of Trump’s agenda from Republicans who lost their primaries due to Trump’s endorsement of their opponent. I give zero spine points for standing up to Trump’s grift, lawlessness, and incompetence only now that it is costless to you.

But there’s perhaps something to the lame-duck condition. The root of Republicans’ fealty to Trump is their belief that he can primary them, and that still clearly holds in more than a few districts (his Iowa endorsement loss is an exception). But revealed behavior being what it is, a few Republicans—and to be clear, there are just a few of them—calculate that they’ve got more to lose by aligning with Trump on everything than by showing some independence. Sen. Thom Tillis (R-NC) put it this way: “I feel like there are people advising the president as if there is no election in November.”

Trump has said he doesn’t care about the midterms, but he’s never seen a vote he didn’t want to rig, and his gerrymanders and proposed voting-rule changes suggest he cares plenty about that outcome. For what it’s worth, which is probably not much at this point, Polymarket has the Democrats at 82 percent to win the House and 47 percent to win the Senate.

Let’s say those odds hold, what can we learn about this recent spate of Trump losses and defections that’s relevant to the back half of his second term wherein Democrats control the House? I’m already too far out of my political economy lane, but I’ll briefly offer the following.

I’d argue that when you add a Democrat-controlled House to these dynamics, and likely even a narrower Republican lead in the Senate, to the at least meager evidence of Republicans recognizing that maybe this Trump guy isn’t great for them and their party’s future, you get an even more insulated Trump for the rest of his term.

Outside of extending his first-term tax cuts, he never had any use for Congress in the first place and views them as a largely irrelevant buzzing in his ears as he and his cabinet pursue their unitary goals whims. That wouldn’t necessarily be a political problem for Trump if his whims weren’t so economically destructive. Yes, he’ll always have the always-Trumpers and never have the never-Trumpers, but the decisive group in the middle that determines election outcomes has realized that, when it comes to their living standards, they bet on the wrong pony. And Republican politicians can only ignore that reality for so long.

So, under the scenario I’m describing, Congress gets nothing done while the Democrat-controlled House holds endless hearings prosecuting the misdeeds of the admin. That won’t be pretty, but I’ve long argued that if we want to begin tacking back towards good governance, Trump’s enablers must be relentlessly prosecuted.

Trump himself doubles down on his personal grift, focusing even more on kickbacks and crypto, and becomes increasingly irrelevant. With greater Democratic control and less unchecked power, he is less able to disrupt on the scale of his first two years in office.

I admit this may be wishful thinking and it is too soon to tell if I’m correct that some Rs are recognizing they need some distance from Trump—as the New York Times put it: “The president’s unilateral and retributive style of governing is starting to hit a wall in both chambers of Congress.” And, especially with SCOTUS mostly behind him, there’s no telling what greater damage he can do. We must especially worry about his attack on the electoral infrastructure.

But it is also important not to let one’s doomerism preclude one from seeing these cracks. A bad day for Trump is a good day for America and the rest of the world. A bad week, quarter, year or two are even better.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack, from which this is reprinted with permission.


Good Policy Meets Good Politics: It's Past Time To Raise The Minimum Wage

Good Policy Meets Good Politics: It's Past Time To Raise The Minimum Wage

The time has come to talk about raising the minimum wage. In fact, the conversation is way overdue.

Though most states—30, to be precise—have raised their wage floors relative to that of the federal floor, which has been stuck at $7.25 since 2009—the longest stretch on record without an increase in the federal level—the rest have not done so. (Some of those laggards have higher within-state minimums; this dynamic map from EPI captures all the geo-variation.)

A bit of throat clearing before I get to the specifics. In a recent post, I ticked off my simple, four-part strategy for raising both pay and labor’s share of national income and giving working people a better chance to earn a fair slice of the pie their labors are helping to bake:

—get to and stay at full employment

—move to sectoral union bargaining

—for low-wage workers in low-productivity sectors, fill out incomes with refundable tax credits (EITC, CTC)

—raise the minimum wage

[Read Arin Dube’s book The Wage Standard for background re all of the above (and more). His research on minimum wages has been highly influential both here and abroad.]

Going back to seminal 1990s work on minimum-wage impacts by economists Card and Krueger, all that state and sub-state variation has enabled economists to get a pretty solid grip on the benefits and costs of the higher wage floor. Arguments by opponents that any such increase will lead to massive layoffs of affected workers have been disproved time and again. Dube’s chapter on this work offers a balanced assessment, and the conclusion is that moderate increases have their intended effect of raising the pay of targeted workers with little by way of job losses.

That’s “little,” not zero. It is not uncommon for some studies to find some negative impacts on jobs and hours of affected workers—those whose wages are lifted by the legislated increase. But, of course, any rational cost/benefit analysis must compare the relative shares of winners and losers, and the literature is clearly in sync with the conclusion noted above.

Dube’s favored metric for this is the own-wage-elasticity (OWE): the ratio of the percentage change in employment to the percentage change in wages due to the minimum wage hike. In an exhaustive literature review from 2024, he and Ben Zipperer find that “the median OWE estimate of 72 studies published in academic journals is -0.13, which suggests that only around 13 percent of the potential earnings gains from minimum wage increases are offset due to associated job losses. Estimates published since 2010 tend to be closer to zero.”

Okay, enough defense. First the politics. Then the plan (or at least, a plan; there are many ways to come at this).

The politics is very simple. In fact, the policy itself is very simple. While most federal legislation takes at least hundreds of pages to explain, minimum wage bills can be a page or two. “Raise the wage floor to $X.” Boom—that’s it.

Complications can arise around a lower minimum for tipped workers, and I’ve got my own complication I’m going to suggest below, but they’re still simple relative to any tax bill you’ve ever had the misfortune to try to parse through.

I’m neither a pollster nor a political strategist, but I know some of the best and have talked to them about this. The gist of their and my thinking is that Ds can get pretty far on the old “we’re not Trump!” play, which taps solidly into Trump’s awful economic record and the anti-incumbency cycle that dominates electoral politics amidst the affordability crisis. But the dispositive group of “persuadables”—neither never- or always-Trumpers—isn’t bullish on Ds either. They need to see candidates fighting to make their lives better, going up against the forces of inequality, unaffordability, and AI-induced wealth concentration.

A higher minimum wage fits nicely into that box. To be clear, any credible proposal will reach a minority of the workforce, but that’s okay. It’s a popular policy with a clear track record of reaching folks who need the help (in Dube/Zip terms, reasonable proposals have an OWE that’s in the 0 to -0.2 or -0.3 range, meaning at least 70-80 cents on the dollar accrues to intended beneficiaries).

The next political question is what and when. Which specific proposal should Ds coalesce around and when should they launch it? The “when” is truly above my paygrade. I’d say after the midterms but well before the presidential, but that’s not informed.

For the what, read this by Ben Zipperer, a highly knowledgeable, rigorously empirical economist who is, as noted, often Dube’s partner on minimum wage research.

The proposal, as you see, is to set a relative minimum wage (versus an absolute level, like $15), at two-thirds of the median wage, phasing it in over time and then indexing to the actual change in the median:

Raising the federal minimum wage to two-thirds of the national median wage would lift pay for nearly 40 million workers, about a quarter of the workforce. Two-thirds of the median—equivalent to roughly $17.70 today, a projected $20 in 2030, and a projected $25 in 2038—matches the benchmarks used in other high-income countries and tracks the direction of recent minimum wage research. Indexing to median wage growth thereafter would keep the floor from losing ground to inflation or falling behind the broader economy.

That’s an historically large increase, so we must worry about unintended impacts, higher-than-usual job loss and a lower (more negative)-than-acceptable OWE. In my own work on this question, which preceded the higher-powered analysis from today’s crop of sharpshooters, I came to feel comfortable with increases that picked up 10-20 percent of the workforce in the “sweep,” i.e., directly between the old and new minimum (“directly” is important; it means before you factor in “spillovers”—wage increases to workers above the new minimum). And once you started creeping up on 20%, I got nervous.

So, when I saw Ben’s “about a quarter of the workforce,” that spidey-sense got triggered. I asked Ben about it and he calmed me down, explaining that his 25 percent includes spillovers, and that the direct impact was around 17 percent. It’s also worth reading his “How High is Too High?” section, wherein he cites careful studies that show comparable increases doing much more good than harm. EG:

The most direct evidence that the floor can go meaningfully higher comes from California’s $20 fast-food minimum wage. In April 2024, the state raised the wage for fast-food chain workers from $16 to $20, pushing the ratio of that minimum to the state’s median wage to about 74%, well above most U.S. precedents. One might worry that customers would substitute toward lower-priced independent restaurants exempt from the policy, generating job losses at the chains. The actual evidence shows otherwise. Despite the large wage increase, research finds little to no employment effect of the policy (Bivens and Zipperer 2026), and the median employment effect in Dube (2026a) is essentially zero. Evaluations of the UK minimum wage through 2019, when it reached nearly 60% of the median wage, also find small, statistically insignificant effects on the employment of low-wage workers (Giupponi et al. 2024).

When it comes to minimum-wage impacts, if we’ve learned anything, it’s this: you’ve got to rigorously and unceasingly test the waters. You just can’t know how these things play out in the real world. In fact, the one thing you can know is that the econ 101 textbook model, which predicts huge job losses if the gov’t imposes a wage floor above the “equilibrium” market wage, is wrong. The truth lies somewhere in-between, which is why you want input from the Dubes, Zipperers, Cards and Kruegers, etc.

As to why the textbook model is wrong, again read Dube’s book for pages of entertaining work on monopsony theory—firms that employ min wg workers can play more of a role in setting wages than the 101 model suggests—and my work, cited by Ben Z on the three-Ps on how higher prices, lower profits, and higher productivity help to absorb the increase (Dube makes similar points). Obviously, the price point is notable in today’s climate, so note that passthrough is well below 1, but it’s not zero.

But—and here’s my one complication—going to two-thirds the national median constitutes a huge jump in the wage floor for the laggard states. We don’t want to reward their irresponsibility to their low-wage workforces, but neither do we want to shock them. The sweeps in these cases will be much larger than the shares Ben cites, and the price effects could also be worrisome.

There are, thus, two options: shift from benchmarking to the national median to state-specific medians or lengthen the phase-in for the states that start with lower floors. I much favor the latter. Benching to state medians seems highly complex, involving 50 different national minimum wages, and it locks in state-level wage structures that militate against getting closer to living wages. Having longer phase-ins for low-base states gets us to the desired destination, but at different cadences for different states.

At any rate, such details can be analyzed and debated along the way. For now, we are—or we can be if we want to—standing once more at my favorite intersection, where good policy meets good politics.

Raise the wage, help the workers, and show the electorate who’s fighting for whom!

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack, from which this is reprinted with permission.

Will Bond Market Yields Force Trump To End His Blundering Iran War?

Will Bond Market Yields Force Trump To End His Blundering Iran War?

I’ll be very brief, both because we have very incomplete info on this and because I don’t like to veer too far from my political-economy lane. But one theme of this Substack is to track a point I made at its inception: incompetent leadership has stark consequences.

If what we’re hearing about the negotiations to end the war is correct, then everyone from policymakers to pundits to voters—especially voters—must ask the questions “What was that for? What did thousands of people die for? Why did the global economy have to undergo a massive disruption, elevating prices and interest rates? Why did the US have to further lower its international stature by not only getting dragged into this war, but by not winning it in any recognizable way?”

The answer cannot be regime change or, at least based on what we know, any thwarting of Iran’s nuclear aspirations. From the New York Times on Sunday:

Publicly, both the American and Iranian officials emphasized the concessions they hoped to secure. Mr. Trump said the deal would reopen the Strait of Hormuz, a vital waterway for oil and gas supplies, which Iran has effectively blockaded during the conflict, spurring a surge in global energy prices.
The Iranian officials said the deal Tehran had agreed to would reopen the Strait of Hormuz without any tolls; lift the U.S. naval blockade on Iran; stop the fighting on all fronts, including between Israel and Hezbollah, the Iran-backed armed group, in Lebanon; and release $25 billion in Iranian assets frozen overseas.

Also, this: “The future of Iran’s nuclear program, part of Mr. Trump’s case for launching the war, was unclear.” Summarizing conflicting reports, it appears that they’re going to table the issue for 60-90 days.

If this information is correct, then one narrow point that’s interesting to me is an answer to “why now?” might very well be the bond market. Back in April of last year, when bond yields spiked in response to Trump’s “Liberation Day” tariffs, he quickly backed off. I suspect the recent spike in bond yields is in the mix here as well.

But the real developing story here is that we may be looking at a deal that basically trades reopening the Strait—returning it to pre-war conditions—for economic sanctions relief and the end of our naval blockade.

If that’s even roughly correct, then this whole debacle must not be allowed to fade into the rearview mirror. It must be held up as the deeply costly blunder that it was, one whose accountability extends well past Trump, on to his Congressional enablers.

Stay tuned for further analysis. I’ll also be watching out for evidence of insider trading, which seems to accompany such developments these days. The depth of the incompetence is only matched by the depth of the corruption.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack, from which this is reprinted with permission.

Trump's China Visit Displayed His Weakness, Narcissism And Insecurity

Trump's China Visit Displayed His Weakness, Narcissism And Insecurity

More often than not, the geopolitical impact of high-level summitry takes times to reveal itself, so perhaps history will record this differently than I do here. But virtually all the reporting from the Trump-Xi summit in Beijing last week suggests the US came out looking like the weaker partner.

Anyone whose been paying attention could see this coming. Donald Trump has two modes in foreign policy: bully those who he believes he has sway over, and be the supplicant to those who have something he admires. Strategic assessment and pursuit of goals that would help the US and its citizens are beyond his reach.

Moreover, Trump went into the summit with a sharp disadvantage: it’s no secret to anyone, most notably his Chinese counterparties, that he has dragged the US into a costly war with no clear rationale. Even worse, we’re stuck in the conflict as a tiny opposition army continues to hold us to a stalemate. Such weakness is toxic in this context, emboldening Beijing in its designs on Taiwan, a situation made significantly worse by Trump’s suggesting that “a potential multibillion-dollar weapons sale to Taiwan" is a “negotiating chip” with China, "raising new doubts about the pace and scale of American military support for the island democracy.”

The problem is that Trump’s approach to foreign policy is extremely simplistic, and is all about, to cite his favorite phrase, “who holds the cards?” Like all insecure narcissists1, he’s a bully who aspires to intimidate other leaders over whom we have an advantage, as in we buy more from them than they do from us. But Xi recognized early on that even while we have a large goods trade deficit with China, we require access to their rare earths, of which they refine 90 percent of global capacity. In those cases, Trump’s foreign policy reduces to making sure the opposing leader is his “friend,” a word he used frequently, if unrequitedly, to describe Xi in this visit.

End of the day, it looks like the two main results of this summit are 1) China might buy more soybeans and Boeing aircraft from us, though this remains unconfirmed, and if past is precedent, the likelihood that such an “agreement” will hold is low, and 2) Xi has further confirmation that the US is weakened by a feckless yet unchecked president who has alienated his international allies, is more focused on his ballroom than expanding American influence, and is bogged down in what is surely the most unpopular war in recent history.

None of this is at all surprising or even that interesting. The more compelling question is what, if anything, does all the above mean for the average American, or for that matter, to the average Chinese citizen, who, for the record, is one of 1.4 billion? This essay by Yi-Ling Liu tries to get at that:

Moving between the two countries, I’ve been struck by how they have come to mirror and resemble each other. There is a shared sense of precarity that lies beneath the envy and distrust: The technological future is taking shape at vertiginous speed, yet its promise is not shared by all.

I’m sure that’s true, and while it’s worse now given the AI-driven angst and uncertainty, along with the exacerbated wealth concentration—in both countries—that I see as another symptom of this technology’s proliferation, such precarity is nothing new.

In fact, it’s inherent to economies both capitalistic and communistic. What matters then is what guardrails the political system puts in place to protect innocent bystanders from everything from job displacements to higher utility costs driven by data centers. It’s what pathways to opportunity we clear for those whose economic starting point blocks their access. It’s the affordability policies we put in place to help people meet their basic needs for healthcare, housing, childcare, and food.

Our federal government is making life more precarious, and, while I’m no expert, I don’t think China’s doing much better. To be clear, I’m not saying international diplomacy is a sideshow. But I am saying that most Americans can be forgiven for being a lot less interested in whether Xi is Trump’s “friend” than what’s left in their paycheck after they filled their gas tank.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack, from which this is reprinted with permission.


Why Do Americans Fear The Advent Of AI More Than People In Other Countries?

Why Do Americans Fear The Advent Of AI More Than People In Other Countries?

You can’t turn around without bumping into an opinion about AI and its risk to jobs. The tech magnates assure is it will replace unprecedentedly huge numbers of white-collar workers, predicting double-digit unemployment. The economists, myself included, point out that, at least thus far, there are only weak correlations at best between AI workplace penetration and weak hiring or higher-than-average unemployment.

For a summary of the lay of this land, you won’t do better than Ezra Klein’s latest oped summarizing the debate. Though I’ll summarize the argument, one I’ve made often up here, the point of this post is not to rehearse this part of the debate. It’s to noodle over why U.S. citizens are so much more negative about AI than those in other advanced economies.

AI and Jobs: Will This Time Be Different?

First, we should be clear that AI is the thing we say most about and know least about. With that caveat out of the way, allow me to add to the noise.

The underlying fact that should always guide one is this discussion is that productivity—output per hour, ergo a metric of technological progress in economic production1—trends up over time and so do jobs and hours worked. For all our technological gains, the unemployment rate, outside of recessions, tends to stay pretty low. (Yes, I’ve argued there’s often too much slack in the labor market, but I’m talking about unemployment at 5.5 percent instead of 3.5 percent, while the AI doomers are talking about massive joblessness.)

Thus, there must an intervening variable, which is demand. Technology replaces some functions in the workplace and introduces new ones.

Then there’s the complementary aspect of technology, i.e., the fact that AI makes incumbent workers more productive. Ezra and others are discussing this under the rubric of “Jevon’s Paradox,” the idea that when a resource becomes cheaper, we use more of it. Jevon, a British economist in the mid-1800’s, noted the paradox regarding the invention of the steam engine, which used half as much coal to generate the same amount of power as existing engines. Instead of demand for coal tanking, it soared, as did the UKs industrial production.

In the AI context, rather than being replaced, software engineers, e.g., can do a lot more with AI’s help. As Ezra points out, “Claude Code is a marvel, yet demand for software engineers is booming.”

I don’t want to get too far over these skis. This time might be different, and surely many workers will be displaced. More on that in a moment. But the point here is that I’d listen more closely to the economists on this one, at least so far.

AI Less Popular Than ICE!?

So why then, in a recent poll, is AI less popular than those masked ICE bandits?

For one, we mere humans are risk averse, and if someone tells us that there’s a technology coming that can replace us, of course we’re going to be fearful. That’s universal.

But I maintain that there’s a unique U.S. version of these worries. Part of this may stem from adoption differences:


But a bigger part, I stipulate, is trust in the gov’t to implement the necessary guardrails to give the workforce a better chance to exploit the Jevon-style workplace complementarities versus getting replaced.

In their tacking of international sentiment re AI, a Stanford University study reports:

The United States reported the lowest trust in its own government to regulate AI responsibly of any country surveyed, at 3i percent. The global average was 54 percent, with Southeast Asian countries leadding (Singapore 81 percent, Indonesia 76 percent).

Globally, the EU is trusted more than the United States or China to regulate AI effectively. Across 25 countries in Pew's 2025 survey, a median of 53 percent said they trust the EU, compared to 37 percent for the United States and 27 percent for China.

At least two factors combine to generate this result.

First, there’s more of a “what’s bad for Main Street is good for Wall Street” vibe over here. When CEOs on U.S. earnings calls talk about layoffs, their share prices go up. Though we’re probably getting closer to each other, there’s still less social solidarity here than in most other advanced economies.

Second, there’s much greater discomfort here with regulatory guardrails and safety nets. Research has shown that if people are confident that social policy will catch their fall if an entrepreneurial risk goes south, they’re more likely to take such risks. If you believe your gov’t is likely to shield you from most of the downsides from a new technology, you’re prone to be less worried about it. Relative to most other advanced economies, workers here operate without a net.

Third, AI firms have very deep pockets and have long been purchasing political protection against regulation or candidates who are tapping into the American public’s deep concerns about AI’s downside risks. No other advanced economy comes close to us in terms of buying political influence, which in this context, reasonably puts fear in the hearts of working Americans.

Fourth, as I’ve endlessly underscored up here, people are already deeply stressed about affordability. The fact that in too many cases, their paycheck isn’t covering their needs makes them a bit touchy re the prospect of losing that paycheck to an LLM.

Fifth, nobody can trust the grift operation known as the Trump administration to have their back on this. Even putting that freakshow Musk aside, Trump has literally had the tech bros in his office giving him gold. That does not bode well for any protections from their excesses.

Yet Another Opening for Democrats

You know my methods, Watson. Hope for the best, prepare for the worst. Ezra and the rest of us suggesting this time might not be so different might be wrong. Which means there’s a huge opening here for Democrats to present a robust AI insurance program that’s responsive to points 1-5 above. Yes, it should bolster existing safety net programs, like unemployment insurance, but while that’s essential for an interim job displacement, over the long term people want the dignity of a job, and even more so, they want their kids to have the opportunities to build successful careers.

This requires education and training programs that boost complementarity and dampen displacement probabilities. It means looking at wage insurance ideas and perhaps even job guarantees—public jobs programs—should extensive, lasting displacement actually occur. Keynes knows there’s a ton of work to do in this economy—I’m thinking health care, human services, child care, personal-touch stuff, not to mention music, literature, and other jobs—that no AI agent can realistically perform (don’t tell me AI writes great books—I’ve seen such work and it sucks).

This shouldn’t be hard, Democrats. Even if the historical odds suggest we should be okay, as greater demand will more than soak up the extra supply, Americans are justly concerned about the risks of AI to their and their children's livelihoods, risks which loom a lot larger here than in other economies.

The time is thus nigh to craft this policy agenda and to tell the people about it. Happy to help, but let’s get to it!1

(1. I’m thinking of total factor productivity, meaning output net of hours, capital investment, and other inputs, so what’s left is considered a proxy for tech gains in production.)

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.


Now It's The Fed Chair's Choice: Should He Stay Or Should He Go?

Now It's The Fed Chair's Choice: Should He Stay Or Should He Go?

Just to be clear, I’m not saying that the Clash had those numbers right re the trouble ratio if he stays or if he goes. But it did seem to be the relevant hook.

Now that the pathway for replacing Federal Reserve Chair Jerome Powell with Trump’s nominee, Kevin Warsh, was cleared yesterday, I expect Warsh’s nomination to quickly get out of committee and over to the Senate floor, where he should have no problem getting a majority (he may not get any D votes, but he doesn’t need them). He could then take over the chair in mid-May, when Powell’s term as chair ends.

Why the bold above? Because even though Powell’s term as chair ends, his term on the Fed board doesn’t end until January ‘28. The norm, however, is for Chairs to leave the building once their Chair term ends, with, as far as I can tell, one exception: when Marriner Eccles stepped down from the Chair in 1948, he rolled over to the Fed board for another few years.

In this case, if Powell stayed on, Miran would have to resign to make room for the newly minted Chair Warsh to take over.

A number of folks, including commenters here, have argued to me that, in the interest of protecting this critically important institution and the economy itself from Trump’s destructive influence, Powell should emulate Eccles. I certainly understand their argument, but I’m not wholly there. I’ll explain my thinking, but only briefly, because this is Powell’s call and there’s nothing anyone can tell him about this that he doesn’t know. (Read Nick Timiraos in the Wall Street Journal this morning for a comprehensive treatment of the stay/go question, with strong stay-vibes from former Fed economist David Wilcox, who knows more about the inner workings and history of the institution than most).

The motivation for stay, Jay, stay! is understandable nervousness about Warsh’s independence from Trump, a concern I share and have written about in recent days. Powell has been a fierce defender of such independence and thus his presence, especially absent Miran, who has consistently voted, often alone, for the rate cuts Trump wants, would be reassuring in that regard.

There’s no doubt in my mind that Powell’s staying on the board would yield better, more balanced, and more independent-from-Trump monetary policy, which would in turn be better for the U.S. and even the global economy. But there are two countervailing factors.

First, Powell has earned the right to do whatever he sees fit. He’s delivered consistently thoughtful, carefully explained, effective monetary policy in 14 years of service, eight of which he was chair. And many of those years were under Trump (who, for the record, reappointed him), wherein he got more presidential harassment than any Fed chair in history, from daily badgering and name-calling, to a phony criminal inquiry.

To be clear, our hearts should not over-bleed for him. He also had one of the coolest jobs in the world, backed by a deeply talented staff and some very smart colleagues on the board. You take the bad with the good. But the point is he served admirably, and has not only pulled rabbits out of monetary-policy hats—the post-pandemic soft landing, which many tony economists said couldn’t happen—but stood up to Trump and preserved the Fed’s independence. He’s earned the right to make whatever next move he desires.

But second, and I know not everyone will share this take, Warsh deserves the chance to establish himself as the new chair without the old chair hanging around. Readers know that I fear where he’s going with his new gig, but under the assumption that he’s legitimately confirmed in coming days, he has the right to takeover and begin to put his imprimatur on the joint.

If Powell should decide otherwise, i.e., that, as Wilcox argued in the Timiraos Wall Street Journal piece, the institution should at least initially be protected from Warsh’s unencumbered leadership, or, for that matter, that he (Powell) is still at risk of prosecution from the bullshit inquiry that Trump cooked up, I’ll of course support his decision.

But the norm of the Chair stepping down is a norm for a good reason: clearing the path for the new Chair is good for the institution. Of course, independent monetary policy is also very good for the institution, so there are good arguments on both sides.

Luckily, there’s only one person who has to make that call. And his call will be the right one.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.


Fed Chair Confirmation Hearing Raises Grave Concerns About Nominee Kevin Warsh

Fed Chair Confirmation Hearing Raises Grave Concerns About Nominee Kevin Warsh

Kevin Warsh had his confirmation hearing yesterday to chair the Federal Reserve once current chair Jerome Powell’s term ends in mid-May. I’ve got a few choice words for these confirmation hearings in general, as they’ve become a big waste of time and should either be scrapped or somehow reformed. They’ve devolved into a signaling exercise that has almost nothing to do with the substance of the nominee’s work. And I speak from experience, as I had to go through a Senate confirmation (wherein I prevailed by 50-49 baby, i.e., with room to spare!).

In that light, I couldn’t watch much of this one. Too painful. But I closely followed it and can report on what I think we might be getting, once the Tillis hold is resolved (you can read about that here) and Warsh takes the chair (once he’s out of committee, he’ll get a majority in the Senate).

Between his opening statement and back-and-forth with the senators on the Banking Committee, I listened carefully to try to discern two things. First, and most important, Warsh’s independence from Trump, and second, what sort of monetary policy he might favor. In both cases, the signals were highly jammed by the posturing and shape-shifting that has made these confirmations largely futile exercises.

For one, Warsh really wants this job—he’s not alone in that—and he knows Trump is listening to him. He therefore has three choices: speak truth to power, Trump’s wrath be damned; mush it up so no one knows what he’s saying; just tell Trump what he wants to hear.

He largely chose the third path. This was no profile in courage. He wouldn’t say that Trump lost the 2020 election. He would not support either Lisa Cook or Powell against Trump’s attacks. More tellingly and substantively, Sen. Chris Van Hollen (D-MD) challenged Warsh on the case for Fed rate cuts, given the fact that inflation has been above the Fed’s target for five years, and that was before war-induced price pressures. His line of questioning asked if a Federal funds rate of one percent would be too low right now, which should be an easy softball as even Trump’s appointee Fed Gov. Stephen Miran is not suggesting such an aggressive cut. But Warsh refused to admit that given current inflationary pressures, one percent would be too low a rate.

This is all concerning in terms of independence from Trump, and in normal circumstances would disqualify him. But anyone in that seat is in a vise, and it doesn’t make sense for them to accept the nomination and antagonize Trump. By showing up, Warsh is basically saying “I’m going to say pleasing things to Trump in order to get the job. They may or may not be true.” In fact, I think they’re mostly not true—my call from a while back that he’s a monetary hawk imitating a dove is looking good after this hearing, but we’ll get to that.

Bottom line, based on this performance, we must be nervous about Fed independence under Warsh, as would be the case with any Trump nominee. He’s shown himself to be a politically motivated shape-shifter, which makes it hard to know how he’d actually handle the independence question. It’s analogous to those Supreme Court justice confirmations wherein they invariably say, “don’t worry—I’m just there to call balls and strikes” and then, in many cases, implement a strike zone that’s more ideological than balanced.

Turning to how he’d govern, even as he sold himself as a rate-cutting dove, I saw numerous signs to the contrary. Before I get to them however, read this Atlantic take from Roge Karma back in January. Here’s how I weighed in:

…Warsh is seen as an inflation hawk who will err on the side of higher, not lower, interest rates. During the 2010s, he became known within Wall Street and Washington circles as one of the fiercest critics of the Fed’s zero-interest-rate policy, to the point of warning about inflation when unemployment was still at 10 percent. “He’s a pretty stone-cold hard-money guy,” Jared Bernstein, who served as the chair of Joe Biden’s Council of Economic Advisers, told me. “It’s a peculiar choice for Trump, because the Fed that Warsh wants is very different from the one Trump wants.”

If you listen carefully to both what Warsh said and, more tellingly, didn’t say, you can see what I mean. His opening statement mentions the full employment side of the Fed’s mandate once in passing, focusing far more intensely on the inflation side:

…Congress tasked the Fed with the mission to ensure price stability, without excuse or equivocation, argument or anguish. Inflation is a choice, and the Fed must take responsibility for it. Low inflation is the Fed’s plot armor, its vital protection again slings and arrows. So, when inflation surges—as it has done in recent years—grievous harm is done to our citizens, especially to the least well-off. They lose purchasing power. Their standard of living falls. They may also lose faith in our system of economic governance, raising doubts whether monetary policy independence is all it’s cracked up to be.

Such passion! Such concern for the poor! And he’s not wrong about the damage from high inflation (though the “inflation is a choice” part is off—exogenous supply shocks happen). But, replace the word “inflation” with “unemployment” and “purchasing power” with income. You can and should listen for yourself—here’s the full video—but I saw and heard a hawk in dove’s clothing.

If so, his internal weighting of the two sides of the mandate would be different from that of Powell, Yellen, Bernanke, who all seemed pretty balanced to me, though of course, pre-pandemic, inflation tended to run below target so the low correlation between unemployment and inflation (flat Phillips Curve) gave them more leeway to pursue lower unemployment.

Two caveats re this hawkish contention of mine. First, there is an equally defensible view that Warsh is a dove when Republicans are in power and a hawk when there’s a Democrat in the White House. Back to Karma’s article:

The case against Warsh is this: What he wants seems to change depending on which party controls the White House. Warsh was a staunch inflation hawk during the Obama administration. Then Trump was elected, and he seemed to soften. In a 2018 Wall Street Journal op-ed titled “Fed Tightening? Not Now,” Warsh and his co-author, Stanley Druckenmiller, argued that, “given recent economic and market developments, the Fed should cease—for now—its double-barreled blitz of higher interest rates and tighter liquidity.”
“He’s someone who has repeatedly shown a willingness to change his positions on a dime when it’s politically convenient,” Skanda Amarnath, the executive director of Employ America, a Fed-focused think tank, told me.

Caveat two is that whatever his true views are, he’s very likely to come out of the box sending rate cut signals to the White House. Yes, that’s the antithesis of Fed independence and the polar opposite of what we’ve seen from Powell, someone who consistently speaks truth to power with clarity and strength. But my point here is that it will take some time to see where Warsh really stands.

There was another part of his testimony that I found highly concerning. He made a weird and troubling distinction between monetary policy, which he correctly argued should be independent from politics, and the Fed’s regulatory oversight role in banking and financial markets, which he incorrectly argued should be open to political pressures. This is a terrible idea, one that raises the risk of the White House pushing to let markets rip—what president doesn’t want a booming stock market?—and thereby underpricing the systemic risk that excessive financial deregulation never fails to deliver.

In a similar vein, Warsh, who made his $100+ million in markets, was also far too sympathetic to the idea of integrating cryptocurrencies into the banking system, a view that placates the powerful crypto lobby at the expense of ordinary Americans and the stability of the broader economy, given the riskiness and volatility of this asset class.

There were other ideas both bad—something about having the Fed work with the statistical agencies to derive a new inflation measure; that raises all sorts of potential conflicts, especially with Trump looming in the wings— or irrelevant—focusing on median or trimmed inflation measures, which of course the Fed staff already does—or good—dialing back excessive Fed communications, press conferences when there’s nothing much to say, and “dot plots” that get over-interpreted by obsessive Fed watchers.

All his stuff about how AI was going to raise the economy’s potential growth rate and thereby allow for lower rates was also misguided (and again, given my framework argued above, was just a tactic designed to please Trump and give his dovishness a penumbra of substance). First, all the capital equipment expenditures associated with AI investment will put upward pressure on rates (to be fair, I think he may have conceded that point) but more importantly, when it comes to productivity gains, you have to see them to believe them, and it takes at least five years to see them.

All told, as you see, I’m nervous about this guy as Fed chair, but he’s better than some of the alternatives, and I’m definitely going to give him a chance. I believe he’s capable of rising to the occasion and filling the shoes of some of the great chairs who came before him, but I’ll be watching closely. Most of what I heard yesterday was not inspiring in that regard.

Which brings me to my final point. These confirmation hearings are awful. They reveal nothing about the nominee except how good he or she is in bending themselves into a pretzel to avoid saying anything of substance (to be fair, there are exceptions; the Van Hollen example above was a smart, substantive question that Warsh flubbed). The members spend their time mostly signaling to their constituents that they’re either harassing or supporting the president’s picks, and then the votes proceed along partisan lines. There’s got to be a better way.

It would be better to have a hearing wherein D and R witnesses, excluding the nominee, discuss the nominees work and his/her positions. At least that way, the public could learn more about what the nominee really believes.

Anyway, much more to come on this, though only if Trump can get out of his own way and let Warsh move ahead.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.
Cyclical Or Structural? Figuring Whether The World Is Stuck With Higher Inflation

Cyclical Or Structural? Figuring Whether The World Is Stuck With Higher Inflation

While everyone’s fishing with clickbait these days—it’s an e-jungle out there—the highly experienced economic journalist Neil Irwin doesn’t make bold claims without some backup. So, when I read this Axios headline from him on Monday, I said “hmmmmm.” I stroked the chin. I furrowed the brow. I asked myself, “is that right?” I answered, “it could be!”

I mean, the economic problem of the decade is surely what Trump is in the process of doing to global economics, but where I go with Neil’s assertion, as you’ll read below, is more about whether something structural (vs. cyclical, as in the business cycle) has changed in how inflation is generated in the U.S. and other advanced economies. In fact, there’s an interesting new Fed Note on the topic which I’ll also highlight below. Like I said, my read of the evidence is maybe (re upward, structural change) but the fact that inflation’s been buffeted by a series of identifiable shocks means that it still may settle back into something closer to its pre-pandemic pattern.

Lurking behind this is the observation that the Fed’s preferred inflation gauge, the PCE, has been above its 2% target since April of 2021, as in five years ago. I show the core PCE in the figure below, taking out energy/food spikes that the central bank can’t do much about. That persistent miss has gotta mean something, right?

A simple but not-too-far-off read of the figure above is that policymakers lost control of inflation in the 70s, Volcker lowered the boom, other inflationary forces, like oil shocks and wage-escalation clauses, became less common, and the central bank went in on “anchoring inflationary expectations,” i.e., convincing price setters it would do what it takes with its monetary policy tools to keep inflation around its 2% target.

But what then explains the not-the-70s-but-still-highly-noticeable rise at the end of the above series?

While it’s true that we’re less exposed to oil shocks, we’re clearly not immune, and we’ve had two in recent years, one of which is a big own-goal-kick by the Trump admin, in which we’re still ensconced. The other was Putin’s doing. (If you want to pause here and think about the causal linkages between authoritarian leaders and higher inflation, be my guest.) The figure shows the retail gas and oil prices (both indexed to 2019) on the left axis, and CPI yearly inflation on the right (the last data point there is the 3.3% March rate we learned of last week).

This is Neil’s piling-on point re supply shocks. Of course, the pandemic is on that list, which was a supply shock in many dimensions. Locked in by COVID, consumer preferences shifted sharply away from services and towards manufactured goods (see figure below), right at the time supply-chains were snarled, sending goods prices through the roof (I’m giving a talk this week on all this stuff, which is why I’m shoving all these slides down your throat).1

Next, enter the Orange Menace with a spate of supply shocks of his own. His and Stephen Miller’s anti-immigration actions have combined with aging boomers to take the growth of labor supply down to a drip. And again, his war is the latest supply shock, one that I do not believe will disappear anytime soon, regardless of the resolution of the ongoing negotiations.

On the demand side, I’d add Trump and Republicans' deficit-financed budget. The fact that historically large deficits stimulate the economy in both bad times (as they should) and good times (as they shouldn’t) doesn’t help in this regard.

Pushing the other way is the fact that productivity has accelerated over these very same five years, from about 1.5 percent to 2 percent—a big deal if it sticks—with potential further productivity juice to come from AI. This is a positive supply shock, typically associated with lower inflationary pressures. But that just means that half-mountain (or maybe just a foothill for now) at the end of the cumulative figure above would be steeper without this force pushing the other way.

I mentioned this Fed Note that asks: “Is the Inflation Process in Advanced Economies Different After the Pandemic?” It’s a quite clear and intuitive exposition; if all this interests you, give it a read. But here’s one of its key findings:

Each bar represents the share of components within the inflation indices of the different countries that are rising >3 percent (pretty fast), 0-3 percent (pretty normal), <0 percent (deflation). As you see, more market-basket components are growing faster, and especially in the US and UK, there’s less deflation (third panel).

Case closed, right? Nope. Tariff-induced goods inflation is in play in the U.S. and housing prices, which are heavily weighted in our data, were also on a tear but have recently eased. It’s an excellent note, but it doesn’t allow us to yet conclude that we’re in a new world re higher, stickier inflation versus we’re slowly getting back to something resembling pre-pandemic inflation dynamics.

Okay, that’s a lot of data points. What does it all mean? Here’s my take:

—Inflation has been elevated since the pandemic and is currently stuck well above the Fed’s target.

—But there are bespoke reasons for that: the spate of shocks and ongoing political-economy malpractice.

—That fact means we cannot conclude that something has changed in the economy’s inflation-generation function. For what it's worth, market-based expectations of where inflation is headed are only a bit elevated.

—But we should all be worried about this. It wouldn’t be terrible if inflation settled in at ~3% instead of ~2%, assuming real wages kept up. But if, instead, the businesses, investors, and employers that set the prices of goods, services, labor, and assets think inflation is on a roll, there’s a risk of de-anchoring expectations.

In that case, the little (half-)mountain/foothill above at the end of the cumulative slide could start to look uncomfortably like the bigger 70’s mountain.

Finally, as far as American humans are concerned, as I’ve argued ad nauseum, it’s not so much inflation—the rate of price changes—that’s gotten deeply under their skin. It’s the elevated price levels, which only grow higher whether inflation is at its two percent target or elevated due to shocks or structural shifts. That said, let’s not over-torque on this blazingly insightful insight of mine (that’s self-directed snark, to be clear; “people don’t like high prices” ain’t exactly the stuff of Nobel prizes). Faster inflation pushes the price level up faster, and, as we can observe in real time, that’s pushing our econ vibes from bad to worse.

[1There’s a different interpretation of this that is compelling: it’s not that supply chains broke; it’s that this demand shift required an almost immediate widening of the pipe through which goods flow, and that didn’t happen.]

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.




Trump's War Delivers A Spike In The Consumer Price Index

Trump's War Delivers A Spike In The Consumer Price Index

The Consumer Price Index rose 0.9 percent in March, pushed up by a war-induced, energy-price increase of 10.9 percent. On a yearly basis, inflation rose 3.3 percent, almost a full point above February’s prewar rate of 2.4 percent. The gas price rose 21.2 percent over the month and 18.9 percent over the year.

The energy-price-driven monthly spike is the sharpest since June 2022, when Russia’s invasion of Ukraine also shocked global energy prices.

Other war-impacted prices include airfares, up 2.7 percent for the month and 14.9 percent year/year. That’s a cost felt by the subgroup of consumers who are flying, but a much more pervasive “price” in the economy is wages. Combining the impact of the March spike in prices with the recent slowing of nominal wages, we see that real hourly earnings were down 0.6 percent in March for all private-sector workers and down 0.7 percent for mid/lower-wage workers. On a yearly basis, the comparable growth rates were 0.2 percent and 0.1 percent, compared to 1.3 percent and 1.2 percent last month.¹


This is a sharp and damaging decline in the buying power of the hourly wage, something already cost-stressed consumers will feel. But because we’re dealing with noisy, monthly data, the question is: how long will these pressures last?

As I wrote yesterday, that’s a function of how the turmoil in the Persian Gulf plays out in coming weeks and months, the extent to which Iran maintains controls the chokepoint of Hormuz—a control that this benighted war delivered to them—and how long it will take damaged energy infrastructure to come back online.

This is, as I said, not the flipping off an off-on switch, and while a ceasefire is certainly welcomed, what we’re seeing in real time suggests the March price spike will not reverse right away, but, assuming the ceasefire holds, will hopefully fade over the next few months.

That said, the idea that President Trump has turned the the buying power of the American workers’ paycheck over to the Iranian regime is perhaps one of his most destructive and shocking actions, and that’s a high bar indeed.

Under the hood:

—Grocery prices fell slightly last month, a welcome change, down 0.2 percent, and up 1.9 percent over the year, down from 2.4 percent in February. My expectation is that the war’s impact on trucking costs—diesel fuel is up over 50 percent since the war started and 80 percent of our food is delivered by trucks—and other inputs (fertilizer, much of which flows through the Strait of Hormuz), will add pressure to this component in coming months.

—Housing inflation continues to ease, back to its pre-pandemic levels, which, given its heavy weight in the index, is helping to keep overall inflation—aside from the war shock—in check.

Readers know I’ve been worrying about core services (ex-housing) inflation as it has been a) pretty high and sticky, and b) not obviously connected to tariffs, so a sign of underlying price pressures. Here’s that series on a six-month annualized basis. It’s jumpy and I’m not convinced it’s out of the woods, but it’s tracking pretty close to pre-pandemic levels, which is a good sign.

Putting that pretty-good-under-the-hood news next to the very bad war effects raises, once again, the own-goal kick proclivities of the Trump administraton's economic agenda. In case after case—tariffs, deportations, budget cuts to key services, war—their decisions make life more expensive and wage-buying-power less strong. The highly resilient U.S. economy can fight back for only so long.

[1. BLS uses CPI-W to deflate the production, non-manager wage; I use the CPI-U.]

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.

Ceasefire! What Might This Mean for the Strait, the Markets, and You

Ceasefire! What Might This Mean for the Strait, the Markets, and You

As I suspect you’ve heard, a two-week ceasefire appears to be in place in the war with Iran. That is unequivocally good news, though no one paying attention can breath anything like a sigh of relief, despite the relief rally going on this morning in equity markets, with West Texas Intermediate oil down ~$20 as I write this (which will have moved by the time you read this).

There are more questions than answers and for the (scant) details as we know them, go to any news source you trust. But here are my quick impressions. Hovering over all of them are “What was that for? What did thousands of people have to lose their lives for?”

Let me be unequivocal about this. I’ll be very happy if the parties in this conflict can find the offramp they appear to be seeking. But I fear this will be no occasion for celebration. Iran’s hardline theocracy remains in place, and worse, appears ready to continue their operation of turning the Strait of Hormuz into a tollbooth, which would be a massive cash cow for them. If you’re thinking “the U.S. would never let that stand!” you might be right, but that could well mean the ceasefire ends and the conflict restarts.

My top priority is that nobody else gets killed because of Donald Trump and Benjamin Netanyahu’s aggressions. But I don’t celebrate the arsonist who puts out the fire he started.

With that, a few impressions of where we are. They talk about the fog of war, but what I’m about to try to see through is the fog of this ceasefire, with an econ-more-than-a-geopolitical angle.

—Feeling the Blues in the Strait of Hormuz: A key Iranian condition for the ceasefire is that "safe passage through the Strait of Hormuz will be possible via coordination with Iran’s Armed Forces and with due consideration of technical limitations."

This is bad. To me, and to some press reports, it reads like they’ll ramp up their control of who transits (relative to pre-war), possibly with a cap on traffic, and with a toll (the number $2 million per vessel has circulated for a while).

We don’t know how private shippers will respond, but what choice do they have? At least in the medium term, there's nowhere near enough supply-chain alternatives to move product out into the globe. If this is broadly correct, and if this condition stands, it suggests that a new, post-war SoH transit premium will be added to the price of oil and other goods coming through the Strait, one that will continue to be passed forward to consumers.

—The Way We Were: Will Markets/Oil Just Revert to Prewar Levels/Trends? Unknowable, but, at least re oil, not if the aforementioned premium kicks in. Equity markets, though they trended down toward correction territory, broadly expected Trump to back down, so the relief rally is solidly underway as I write this AM: Here’s the S&P pre-opening futures:

Gas is up this morning ($4.16/gal), and if the oil decline sticks, we’ll have a real-time test of the old rockets/feathers dynamic, where the gas price takes the elevator up and the stairs down.

I’m not in the biz of predicting where markets will go but if the result of this war, as some are predicting, is to crimp the existing supply chain of fossil fuels, it would raise prices and dampen global growth at some margin. But it could also stimulate new activity to find workarounds to this obviously dysfunction choke point, and put more wind power in the sails of renewable energy development. (You know my views on this: as I said to Shalanda Young yesterday, if I were in charge, I’d do the Canadian Shuffle and allow a nice bunch of Chinese EVs into the US, conditional on some degree of tech-transfer and joint production.)

—Will It Stick? I find the fact that the Trump administration is apparently allowing Iran’s 10-point plan to be a starting place for ceasefire negotiations to be very surprising and a symbol of how desperate Trump is for an offramp. He’s gone from promising to end their civilization at 8pm ET to “sure, we’re cool with sitting down to chat about you keeping your nukes and controlling the Strait.” You’ll see what I mean if you look their list.

I’ve been following Tobin Marcus from Wolfe Research on these matters, who writes this morning (with Chutong Zhu):

If the US were outright accepting Iran's 10 points as they're now being reported, this would be a huge surprise and a massive concession, with the US accepting various Iranian red lines and giving up on our own, including on the nuclear file. On the other hand, if defining the 10 points as a "basis for negotiations" does not imply acceptance of those points, then it's unclear how close the two sides really are in the ongoing negotiations. It's a little hard to believe that Trump is accepting anything like Iran's 10 points, and the WH seems to be telling Israel we're doing nothing of the sort, so we lean toward interpreting this as intentional wiggle-room to facilitate an offramp, which raises questions about the likelihood that the next two weeks of negotiations will actually culminate in a permanent deal.

In other words, there’s a tension between Trump’s usual play—break something, declare victory, move on to breaking something else—and accepting what should be unacceptable. And it is impossible to know at this point how that balances out. If you pushed me to take a side, I’d guess he’s more likely to mush up some version of pushing back on the most egregious Iranian conditions and turn tail outta there.

—What Does All This Mean For Regular Folks Just Trying to Go About Their Lives? As you know, this is always my touchstone up in here. Assuming the ceasefire sticks, Strait of Hormuz traffic picks up, and the oil price falls at least part of the way back to its prewar level, the gas price should slowly come down, much as we predicted here. That still cuts meaningfully into real disposable incomes, and, as I’ve been worrying about, lower real wage gains. I’m watching carefully to see how the March headline CPI, out Friday, compares to the most recent pace of mid/low wage growth of 3.4 percent.

But more broadly, for folks just trying to make ends meet, this misadventure in the Middle East is yet another Trumpian own goal kick in their faces. The Trump tariffs, the Trump budget, the Trump war—they’re all making life more expensive for people, which is especially ironic given that those people will tell you that their main economic concern is affordability.

And never forget the opportunity costs: if you’re spending all your time making things worse, you’ve squandered the time you could have spent making things better. Imagine that instead of negotiating a 10-point plan that gives the Iranian regime what they want, we were negotiating a 10-point plan for affordable housing, childcare, and healthcare.

I’ve said it before, including yesterday, so sorry—not sorry—for being repetitious. But any Democrat who seeks to retain and win office that isn’t working to operationalize that contrast needs to immediately get out of the way and make room for someone who will fight their a— off on behalf of these priorities.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.

Reprinted with permission from Econjared.