The strong labor market doesn’t mean a recession is inevitable

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

Some people will call this bad news: The Fed won’t be able to reign in inflation with modest hikes if the economy is humming along. Instead, it will have to cause a massive recession, the kind of thing former US treasury secretary Larry Summers has warned about because the Fed’s interest rate hikes came too late to prevent the dreaded wage-price spiral.

But take off your macroeconomist hat for a minute. Imagine telling someone who got a job last month that it would have been better had they not gotten that job. The fact they are now employed means the government is more likely to try to take that job away. It would be better for the economy had they stayed unemployed, at least until inflation goes down.

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