KC Fed, Report: Why Has Monetary Policy Tightening Not Cooled the Labor Market Enough to Quell Inflation?

“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.”

“In sum, labor markets in services industries have historically been less sensitive to monetary policy tightening than other industries, a pattern confirmed by developments over the last year. Because labor tightness in these industries has contributed substantially to elevated inflation, this pattern suggests a potential roadblock for monetary policy in effectively bringing down core services inflation and provides a potential reason why monetary policy has yet to cool the labor market enough to bring inflation back to target.”