Did A Woefully Inaccurate Government Report Contribute To The Next Recession?

David Reavill
4 min readSep 21, 2024

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Government Agencies

The United States has the most extensive financial system in the world—a system that is increasingly delicate. This is because of the tremendous amount of leverage we are carrying. At every level, government, corporate, and individual, we have piled on debt to levels not seen before.

This leverage makes it imperative that the Federal Reserve’s moves in setting interest rates be precise and measured. If the Fed positions interest rates too low, as likely occurred immediately following the 2020 Pandemic, the result will most often be inflation, as we saw.

However, the other side of the coin is that if the Fed holds interest rates too high for too long, it will likely cause the economy to slow and, at the extreme, go into recession.

Now, the Fed has the largest, most well-funded economic research staff around — at last count, more than 900 PhD.s — laboring to ensure that the Board has the best, most up-to-date picture of the American Economy.

However, as anyone who has ever worked in a large organization will tell you, there’s data, and then there’s data. Some information is much more important than others. For the Federal Reserve, two pieces of “data” precede the rest: inflation and the labor market.

It isn’t some whim of the Federal Reserve but part of the Fed’s mandate from Congress. As we’ve discussed before, on October 27, 1978, President Jimmy Carter signed into law what was called the Humphrey-Hawkins Bill, or more accurately, the Full Employment and Balanced Growth Act.

This law says that the Fed must strive for an economy of stable prices and full employment. This is not an easy task. Over the years, the precise level of employment and inflation has been adjusted to meet the changing dynamics of the nation. Today, it’s fair to say that the Fed considers “full employment” to exist when the unemployment rate is 4% or less, and stable prices exist when inflation is 2% or lower (the Fed’s stated target).

So that’s the Fed’s standard, the goals they must look to before anything else is considered. This is also why Fed Chairman Jerome Powell begins each speech referencing the “twin mandate.” It’s no accident or coincidence; it’s Powell’s way of saying, “OK, here’s how we’re achieving our most important objectives.”

It took about a year, but after the country emerged from the COVID-19 pandemic, things settled down for American workers. By December 2021, the nation’s unemployment rate ticked below 4%, where it has remained ever since. Clearly, the Fed didn’t need to worry about the “full employment” mandate.

However, inflation was another kettle of fish entirely. As we all know, inflation has been on a rampage since the Pandemic. In 2021, CPI Inflation roared at 4.6%, double the Fed’s 2% target, and then doubled again in 2022 to an incredible 7.99%, the highest inflation rate in over 40 years. The Fed had a real crisis on its hands — inflation.

It follows that the Fed has been fighting inflation for more than two years, assuming that employment was steady. After moving interest rates to better than 5% in May 2023, the Fed has kept interest rates high, all to curb inflation by slowing an “overheated” economy.

They felt comfortable taking this action because the Bureau of Labor Statistics told them, month after month, that the American economy was adding new jobs and that unemployment held steady.

The BLS reported that in the 12 months ending March 2024, the economy created 2.9 million new jobs. You probably heard President Biden and other members of the Cabinet extol all the latest jobs they’d created. Unfortunately, it simply wasn’t true. The number of new jobs was overstated by 818,000, a 28% error.

The Bureau claimed that the population model was off, contributing to dramatically overstating employment.

We are left to wonder whether something more sinister was at work here. The Bureau of Labor Statistics has long been considered one of the most politicized government agencies, and this being an election year, was there a political motivation behind this inflation of the number of employed?

We do know that through March, the BLS has restated the nation’s number of new jobs as lower by 800K. But what of the intervening six months until now? There has been no update from the BLS.

The Fed quickly adjusted its employment numbers and may have found that the country’s employment picture was much weaker than earlier. This is why the Federal Reserve dropped interest rates by 50 basis points, double the level Wall Street expected.

If you follow the logic, it’s easy to conclude that the next recession is much closer because the Fed held interest rates too high for too long. Tight monetary policy was due to faulty employment numbers, which suggested the labor economy was much stronger than reality.

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David Reavill

David Reavill writer + finance +iconoclast + hiker + Pennsylvania #valueside daily podcast + medium + meditate valueside.com/links