Why Has Monetary Policy Tightening Not Cooled the Labor Market Enough to Quell Inflation?

Karlye Dilts Stedman and Emily Pollard

Economic Bulletin, 2023, 4

Abstract: Despite a year of rapidly rising interest rates, labor markets remain tight, likely contributing to the persistence of inflation. We create industry-specific versions of the KC Fed’s Labor Market Conditions Indicators (LMCI) to examine labor market tightness in different sectors. We find that labor markets in the services sector—which have contributed substantially to recent labor market tightness and inflation—are less sensitive to changes in interest rates, increasing the lag for monetary policy transmission.

Keywords: monetary policy; labor market; inflation (search for similar items in EconPapers)
JEL-codes: E24 E52 E58 (search for similar items in EconPapers)
Date: 2023
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