US employment is almost back to pre-pandemic levels in the United States after 390,000 people were hired in May.

Some would call this bad news: the Fed won’t be able to rein in inflation with modest hikes if the economy is doing well. Instead, it will have to cause a massive recession, the kind of thing former US Treasury Secretary Larry Summers warned against because the Fed’s interest rate hikes came too late to prevent the formidable wage-price spiral.

But take off your macroeconomist hat for a moment. Imagine telling someone who got a job last month that it would have been better not to have gotten that job. The fact that they now have a job means the government is more likely to try to take that job away from them. It would be better for the economy if they remained unemployed, at least until inflation fell.

If that sounds crazy, well, that’s the kind of logic that makes people look askance at economists. And there are reasons to believe that is not correct. As the Fed began raising interest rates to combat high inflation in April, Chairman Jay Powell argued that price stability could be achieved without a severe recession because “the economy is very strong and is well placed to manage a tighter monetary policy”.

When Powell talks about the strength of the labor market, he notes, for example, that job openings far outweigh the number of people looking for work. If the Fed’s efforts to reduce demand in the economy are effective, we could see job vacancies decline, moderate wage growth and inflation without putting people out of work. These jobs also represent income that will strengthen household balance sheets as Fed hikes continue through at least 2022.

Arindrajit Dube, economist at Boston University argue that today’s labor market is successful and not clearly responsible for inflation. If you think unprecedented pandemic relief spending is the culprit, the spending is over. If you blame the supply chain pandemic crunches, those are also receding. If you blame rising energy prices on Russia’s invasion of Ukraine, it’s not on the US labor market either.

The key distinction is between jobs and wages – the tangible fear is that price increases from any source could trigger a vicious cycle of reinforcing wage and price increases. But we just don’t see it. Wage growth has slowed in 2022. A common market gauge of inflation, comparing inflation-protected treasury bills maturing in five years to regular five-year treasury bills, has fallen steadily since April and shows that investors expect 3% inflation in 2027. That’s still higher than the Fed would like, but it’s also not consistent with a Fed-induced recession.

Indeed, with most economic indicators being generally positive, the main argument for a recession boils down to “it usually happens when the Fed goes up”. Powell and other economists pointed to a history of soft landings and recessions that have nothing to do with the Fed’s rate setting, citing seven subdued results in the past 11 times the central bank has hiked. interest rates.

It’s worth considering that Powell’s arguments are as much about building confidence as predicting future conditions: if companies act like Elon Musk, who decided this week to downsize Tesla because he had a bad feeling on the economy, then a recession is inevitable.

But we don’t need to turn good news into bad news.