While the Fed is considering a move, democracies are lagging farthest in job recovery

A restaurant advertising job appears to be attracting workers in Oceanside, California, USA, May 10, 2021. REUTERS / Mike Blake

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WASHINGTON, Nov. 19 (Reuters) – Hoping to restore U.S. employment to its pre-pandemic level, a target of the Federal Reserve and the Biden administration, now rests on job recovery in New England and California, a potentially worrying fact for the president Democratic Party ahead of critical midterm elections, and as the Fed plans a possible turnaround to a tighter monetary policy.

Data released on Friday shows that by October, employment in states with Republican governors was close to 99% of what it was in February 2020, while democratically-led states lagged by about 96%.

While estimates at the state level may be volatile, especially month-on-month, the apparent greater remaining job shortages in democratic areas reflect the elections – and political divisions – that emerged early in the pandemic. States in the Northeast and Mid-Atlantic tended to impose stricter measures against coronavirus and hold them in place longer than Republican-led states in the South and West.

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Employment fell more sharply in these areas and the gap remains late in the recovery.

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The recovery has come faster than many had expected, but it remains uneven. Out of 10 states that had more jobs in October this year than in February 2020, seven had Republican governors, and a further six GOP-led states were within 1 percentage point of their pre-pandemic job level.

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Job levels alone do not tell the whole story, and on key targets such as the overall employment-to-population ratio – considered a more complete measure of labor market health than unemployment – Republican strongholds such as Texas and Florida remained well below pre-pandemic levels.

But job levels pose a potential challenge for Biden, with key Democratic states like New York and California still 5% below the pre-pandemic peak, and political battlegrounds like Pennsylvania lagging behind as well.

Until recently, it seemed that the Fed was keen to keep monetary policy loose and borrowing costs light, as long as it took to get those jobs back.

That goal may now conflict with the Fed’s second goal of stable prices, challenged by inflation that causes central bankers’ policy makers to discuss a faster step towards tighter policies – which could slow job growth before areas central to Biden’s policy chances, are. able to catch up. Read more

This dynamic now also appears to be central to Biden’s decision on who to place at the top of the Fed. Incumbent Jerome Powell’s term expires in February, and Biden is expected to make a decision within the next week on whether to reappoint him or replace him, most likely with Fed Governor Lael Brainard.

The high inflation rate, which has lasted longer than politicians had expected, damages Biden’s approval ratings and increases the importance of his choice of central bank governor. Read more

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Reporting by Howard Schneider; editing by Jonathan Oatis

Our standards: Thomson Reuters Trust Principles.


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