The Fed shouldn't 'sacrifice the economy' in order to reach its 2% inflation target, Moody's chief economist says
, blowing past market estimates of 180,000. The red-hot reading could complicate the Fed's approach toward combating inflation, but it was tempered by slower wage gains and an increase in unemployment to 3.7% in May from April's 3.4%.
"The tight labor market is easing. Hiring is back to its pre-pandemic pace, layoffs are normalizing, and workers are no longer quitting their jobs at an extraordinary pace. Wage growth has rolled over. There are still lots of open positions, but I suspect they are soft opens," Zandi said. The ongoing stress in the banking industry is another factor that should convince the Fed to pause, he said. Government actions have curtailed a further deposit run on the sector, but Zandi maintained that the system remains"fragile" and depositors are still"on edge" as they continue to move their cash into money-market funds. will fall to the Fed's 2% target by May next year, from 4.9% in April.
"Why should the Fed sacrifice the economy to the altar of a 2% inflation target , when most Fed officials probably think a 3% target makes more sense? The zero lower bounds is too close at 2%. They wouldn't let on they have this view, but…," he added in the Twitter thread Sunday.
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