The U.S. economy added 199 000 jobs in December, disappointing the average expectation of 422,000 jobs, while the unemployment rate fell from 4.2 percent in November to 3.9 percent. Wages increased by 4.7 percent in December compared to 12 months ago.
Although the Labor Department reported an increase of 0.5 percent in wages over the past year, inflation in the United States increased by 6.8 percent, far outpacing any relief the pay bump may have provided. Meanwhile, 4.5 million Americans quit their jobs in November as the great resignation is not showing any signs of slowing down.
This exceeded the previous record of 4.4 million people quitting in September as there are currently 6.9 million unemployed Americans and 10.6 million job openings – many of which are low skill or otherwise undesirable. Workers are expected to maintain bargaining power in 2022, according to job site Indeed, as the supply gap increases.
COVID-19 is still causing a shortage of workers because many parents can’t find affordable daycare or are afraid of contracting the virus. Some economists like Kathy Janstick from Oxford note that the balance of negotiating power could shift slightly later on in 2022 when COVID gets under control and the supply of workers increases.
Meanwhile, the federal reserve has been printing a record amount of money over the past two years and keeping interest rates at close to zero percent. Consumer prices are rising at their fastest pace in nearly 40 years.
The chairman of the federal reserve, Jerome Powell, has said that the high rate of inflation is transitory due to supply chain issues, but in December he reversed that statement and now the federal reserve is taking significant action in order to fight inflation.
The fed wants to stop the money printing completely by March 2022 and immediately start raising interest rates. They are also exploring the idea of quantitative tightening, a process where they remove money out of the system.
Quantitative tightening would put a hard stop on inflation by lowering the amount of circulating dollars, but some economists say it could trigger another great recession if the federal reserve actually goes through with their plan. Unemployment numbers would go up while the digital asset and equities markets would and the entire economy will suffer.
In such an event, the Fed would most likely be pressured into restarting the money printer and lowering interest rates again. This would cause further inflation and perpetuating a vicious economic cycle.
Minutes from the Federal Reserve’s December meeting released on Wednesday showed the central bank was preparing to cut back on economic stimulus faster than expected. Shortly after, the announcement sent crypto and stock prices tumbling.
Selling pressure in the financial markets continued through the end of the week, pushing Bitcoin to just under $42,000 with a loss of nearly 11% over the past 7 days. Total crypto market cap was at $1.98T, down from 2.03T earlier in the week.