• Kevin Hassett argues that softer jobs data does not signal rising inflation, citing offsetting factors like productivity gains and supply chain normalization.
  • The view could influence expectations for Federal Reserve policy, potentially reinforcing bets on a slower tightening cycle or eventual easing.
  • Market participants are weighing the divergence between labor market cooling and persistent disinflation trends.

Jobs Data and Inflation: Hassett's Take

Kevin Hassett, former chair of the White House Council of Economic Advisers, pushed back against concerns that weaker U.S. jobs data could foreshadow higher inflation. Speaking at a conference on Thursday, Hassett emphasized that other factors—including productivity improvements and easing supply chains—are likely to keep inflation on a downward path even as payroll gains slow.

The comments come after the latest nonfarm payrolls report showed a modest gain of 150,000 jobs, below the consensus estimate of 180,000. While some analysts worried that a cooling labor market could eventually feed into higher prices via reduced supply, Hassett argued that the relationship between employment and inflation has shifted.

“What we’re seeing is a labor market that is rebalancing without triggering wage-price spirals,” Hassett said. “Productivity is picking up, and global supply chains are normalizing—those are powerful disinflationary forces.” He added that unit labor costs are growing at a slower pace, which should keep core inflation contained.

Market Implications

Hassett’s perspective could bolster expectations for a less aggressive Federal Reserve. If the central bank interprets the data as consistent with a soft landing, it may hold off on further rate hikes and potentially pivot to cuts by mid-2025. Bond markets initially rallied on the jobs report, with the 10-year Treasury yield falling 10 basis points to 4.35%. Equities also gained, as investors priced in a lower risk of policy tightening.

Some economists remain cautious. “While Hassett’s logic holds if productivity gains persist, we’ve seen false dawns before,” said Ellen Zentner, chief economist at Morgan Stanley. “The Fed will need to see more data before declaring victory.”

Broader Context

Hassett’s view aligns with a growing camp of economists who argue that the economy can sustain moderate growth with low inflation, thanks to favorable supply-side dynamics. He pointed to rising labor force participation and increased immigration as key contributors to labor supply. However, critics note that geopolitical risks—such as energy price spikes or trade disruptions—could quickly reverse the disinflationary trend.

When asked for comment, a spokesperson for the White House declined to weigh in, saying they do not comment on individual economists’ statements.

Correction: An earlier version of this article misstated the date of Hassett's remarks. They were made on Thursday, not Wednesday.