America’s best bet to quell inflation: More immigrants

Strangely, policy circles talk little about the only cure for the worker shortage that keeps wages on a rising trajectory: immigration. The best way to rein in US inflation is not to raise interest rates until it induces a recession enough to destroy demand, including jobs, but to push more people around the world into the US. is to join the workforce and allow for additional supplies. To meet unmet demand.

You might also like

Will OPEC Oil Production Cuts Pinch You at the Pump?

Festive fizz for economy as buyers boost sales

Bajaj Finance Outlook Promising, But Watch Margins

Why is growth slowing in the services sector?

A simple search for labor shortages in the U.S. will bring up stories from sectors once hit by labor shortages: healthcare, education, pre-school care, construction, ground-handling services at airports, retail, farms, Hospitality, trucking, whatever you say. The reduction in trucking and rail services transparently increases inflation through disrupted, delayed supplies.

The labor force participation rate in the US has been falling since peaking at 68% in 1997. This was 63% pre-pandemic and the latest figure is 62.4%. The US has traditionally relied on seasonal migrants from south of the southern border for relatively low-skilled workers, and university students from overseas to fill skilled vacancies, in addition to the industry hiring the required number of foreigners.

Yet politics has persuaded America to repatriate one million people who had been working in that country since 2009. Since Trump, blocking immigration to the US has become a major political cause for Republicans. Therefore, easing immigration restrictions will not be easy politically.

Still, the reality is that easier immigration will help the US economy grow with lower prices. With a demographic transition that will reduce the number of Americans over 65 to 18 in about 12 years, according to the Brookings paper, the US needs to create a rational policy to increase the number of workers through immigration. ,

For the rest of the world, the contribution of the short-term interest in giving more foreign workers to the US is that it will accelerate the reduction of wage pressures and overcoming inflation. As long as the US Fed continues to raise policy rates, central banks around the world are under pressure to raise their policy rates, in order to maintain the interest rate differential relative to the US, so that their currencies do not depreciate. The dollar is higher than they already have – the dollar index is up 19% from a year ago (the index measures the value of the dollar against a basket of six major currencies, the euro, the Swiss franc, the Japanese yen, the Canadian dollar, the British pound, and the Swedish Krona).

When currencies depreciate against the dollar, imports in local currencies become more expensive, leading to import inflation. Especially with volatile energy prices mostly denominated in dollars, depreciation against the dollar is a sure path to high domestic inflation for any country, except for those still buying oil from Russia. Furthermore, when yields rise in the US, capital flees to other shores and rushes into US gilts, fueling the dollar’s appreciation, and pushing down domestic stock prices.

To avoid this fate, other countries raise rates to at least maintain their interest rate differential with the US. High rates and high imported inflation are a recipe for low growth, which the World Bank says is pushing the world into recession.

More immigrants present the best bet for the US to calm domestic inflation and prevent policy rates from rising; And for the rest of the world to avoid hurting their domestic economies by raising rates whenever the US Fed does.

Elsewhere in Minto

In Rai, Rupa Madhav and Ashirvad Dwivedi explain business water risks Commodity Exchanges of India. Indira Rajaraman writes one star achievement of India’s economy. Rohan Banerjee weighs in on New Zealand Laws against official use of flowery language, long story tracks local train economy of West Bengal.