High unemployment benefits make young Americans seem less and less willing to work. In April 2021, 2.7% of workers in the United States left, the highest level since 2000, according to the U.S. Department of Labor. In addition, according to the financial blog Zerohedge, about 15 million people in the United States are still receiving subsidies because of the generous unemployment benefits in the United States.

At the same time, American companies are racking their brains to recruit and retain employees, raising wages, benefits, and promotions. According to the latest employment report in the United States, the average hourly wage in the United States has risen to a higher-than-expected level for the second month in a row.

The United States seems to be facing a vicious wage-price circle: high wages push up business costs, push up consumer prices, raise the cost of living, and workers demand a bigger pay rise. In addition, the US inflation indicators CPI and PPI in May were both "exploding", with PPI rising 6.6% year on year, the biggest increase since the data were available in 2010.

Under the dual pressure of employment and inflation, the inflection point of the Fed's policy has become the focus of the market. In the early hours of Thursday morning, Beijing time, the Federal Reserve FOMC will hold an interest rate meeting, and global capital markets will pay close attention to changes in the Fed's language on issues such as inflation, reducing QE and raising interest rates.

Legendary Wall Street trader Paul Tudor Jones said bluntly that this week's FOMC will be the most important meeting of Federal Reserve Chairman Colin Powell's career.

Is it too fragrant to lie flat? 15 million Americans receive unemployment benefits

The sequelae of the US government's frenzied spending of money are emerging.

Since the outbreak of the COVID-19 epidemic in the United States, the Trump administration and the Biden administration have handed out cash directly to American families many times, and some Americans have even received epidemic subsidies that exceed their income from normal work.

Although the epidemic is gradually passing, young Americans seem to be used to "lying flat" and their willingness to work has fallen to rock bottom, which is due to the fact that the US government continues to pay high subsidies to the unemployed.

Since the outbreak of COVID-19 in 2020, there has been a sudden wave of unemployment in the United States, with the unemployment rate once as high as 14.7%. In order to help the unemployed, in addition to cash subsidies and unemployment insurance, the federal government provides the unemployed with a weekly subsidy of $400 (later reduced to $300 / week), plus unemployment insurance. Unemployed Americans earn more than $2000 (12000 yuan) a month at home, and some earn more than they earn from hard work.

It is worth mentioning that the cycle of unemployment benefits in American states generally ranges from 3 to 9 months. when unemployment benefits are about to expire, some young Americans begin to look for jobs. After being hired, they work for a period of time, then resign or get fired. And then continue to go home to receive unemployment benefits for 3-9 months, in order to go back and forth.

As a result, most Americans prefer to "lie flat" to receive subsidies rather than go to work, and although most industries in the United States have returned to work, they are faced with the situation of not being able to recruit or retain people. In the most extreme case, some American companies train new employees almost every day, and even if they are qualified, they will face a wave of departures after working for a period of time.

According to the U.S. Department of Labor, in April 2021, the proportion of US employees leaving reached 2.7%, the highest level since 2000, indicating that the willingness to leave in American society is already very high. In addition, according to the financial blog Zerohedge, about 15 million people in the United States are still receiving subsidies because of the generous unemployment benefits in the United States.

On the other hand, a large number of American companies are racking their brains to recruit and retain employees, raising wages, benefits and promotions. Bank of America, for example, has raised the minimum hourly wage to $25, higher than many of its main competitors; McDonald's gives its employees an average 10% raise, and Wal-Mart, Starbucks, Amazon and JPMorgan Chase have all announced pay rises. but still can't keep young people in America.

The Chamber of Commerce said overly generous government benefits were reducing the willingness of workers to return to work and that giving money to those who did not work was "weakening what should have been a stronger job market" and stifling the economic recovery.

The vicious circle of wage and price

Employment and inflation have always been the two most important indicators that affect the Fed's decision-making. Fed Chairman Colin Powell has pointed out that the main indicator of the Fed's decision-making is the labor market index.

The current employment situation in the United States still falls short of market expectations. According to data released by the US Bureau of Labor Statistics, non-farm payrolls in the United States increased by 559000 in May, lower than the 674000 expected by the market. It means that the growth of non-farm payrolls in the United States is still less than expected, which may be related to the willingness of young Americans to work.

While employment is lower than expected, various industries in the United States are going all out to resume work and production, and the demand for talents is recovering rapidly, leading to a shortage of supply in the US labor market. In desperation, a large number of employment enterprises take the means of raising wages to attract talents, which makes the labor costs of American enterprises rise to a certain extent, which may lead to a further rise in prices, which may eventually lead to a rise in the rate of inflation.

According to the latest non-farm payrolls report in the United States, the average hourly wage in the United States has risen to a higher-than-expected level for the second month in a row. In addition, the number of job openings in the United States reached 9.286 million in April, and the number of voluntary departures reached 3.985 million, all of which reached an all-time high.

Therefore, Federal Reserve Chairman Powell has always stressed that the problem of the US job market is more important than the problem of inflation, which is only temporary. Fed officials say measures such as stimulus and higher unemployment benefits could push up wages across US society.

After the epidemic gradually passed, young Americans who received high unemployment benefits began to go on a spending spree. According to American express company CEO, the consumer spending of young Americans is 125% higher than in 2019, and their demand for travel and consumption is in a state of blowout after being suppressed.

Under retaliatory spending, inflation in the United States has soared. In May 2021, the CPI data of the United States broke the chart again, surging 5% year-on-year, the highest in 13 years, and the core CPI (excluding volatile food and energy data) rose 3.8% year-on-year, also exceeding market expectations.

It means that the cost of living for American residents has risen sharply, with some American residents saying that the price of corn has risen by more than 44%, and the price of a box of steaks has risen by nearly 60%.

Another measure of inflation: the producer price index (PPI) is also off the chart again. Data released by the labor department on the evening of June 15th showed that US PPI rose 6.6 per cent in May from a year earlier, the biggest increase since the data began in 2010 and higher than the 6.2 per cent expected by the market.

On a month-on-month basis, the US PPI rose 0.8 per cent in May from a month earlier, compared with an expected 0.5 per cent, compared with a previous value of 0.6 per cent. Us core PPI rose 0.7 per cent month-on-month in May and is expected to rise 0.5 per cent, with the previous value rising 0.7 per cent.

The higher-than-expected rise in production costs of enterprises is likely to be transmitted to terminal sales, which may further aggravate the rise in US CPI, while the Fed's core CPI target for 2021 is 2%. At present, there is greater pressure to achieve this goal.

Where will the Federal Reserve go?

Under the dual pressure of employment and inflation, the inflection point of the Fed's policy has become the focus of the market. In the early hours of Thursday morning, Beijing time, the Federal Reserve FOMC (Open Market Committee) will hold an interest rate meeting, and global capital markets will pay close attention to the Fed's language changes on inflation, QE reduction, interest rate hikes and other issues.

Legendary Wall Street trader Paul Tudor Jones said bluntly that this week's FOMC will be the most important meeting of Federal Reserve Chairman Powell's career and the most important meeting of the Federal Reserve in the past four or five years, because the Fed's credibility may be threatened by its view that inflation is only temporary.

With regard to the current "burst" rate of inflation in the United States, the Fed's previous attitude was that the surge in inflation was only temporary. Comments that appear to be intended to reassure the market will be known in the early hours of Thursday.

The minutes of last month's meeting show that the Fed believes that monetary policy adjustment still needs to make "substantial further progress" in the US labour market and inflation, but some officials believe that the pace of adjusting QE can be discussed next.

For now, the market still believes that the Fed will maintain its ultra-loose position after this week's interest rate meeting. According to a survey conducted by the media, more than half of the economists surveyed expect the median expectation of 18 Fed officials to raise interest rates at least once in 2023.

In addition, US 10-year and 30-year Treasury yields are already at their lowest levels since early March, suggesting that the Fed is not expected to tighten monetary policy too quickly because of inflation.

Historically, too consistent expectations are often the biggest risk to the market, and once the Fed's comments turn slightly, there is a good chance that the market will be greatly destabilized. Recently, major Wall Street banks, including Morgan Stanley, Citigroup and JPMorgan Chase, have begun to warn the Fed of the risks of this turnover "hawk" and investors need to be vigilant.