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Journal Article

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


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;

JEL Classification: E24; E52; E58;

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Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Economic Bulletin

Publication Date: 2023-03-31

Pages: 4