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Comment by NewJazz | Hacker News Reader

What's interesting is that Trump should be happy with a weak labor market, as it helps him with that interest rate on debt problem he seems to have.

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There's a bunch of advantages to high unemployment. It reduces inflation. You get to champion a bill to introduce a new stimulus package (whether or not it gets accepted, you look good). A rate cut means stock boosts which politicians/the rich and corporations like. It makes it easier for employers to hire (bigger pool to choose from), wages lower, and it tamps down on those pesky "union agitators" as everyone is fearing for their livelihood more. All the downsides are long-term and affect individuals more than corporations or politicians.

Huh, how does a weak labor market reduce interest?

It indicates that the cost of capital might be too high to justify investing, so you can reduce it in order to spur investment (like during ZIRP).

Federal reserve looks at unemployment rate when deciding whether to lower interest rates.

Simply put, when the economy is in the shitter, the federal reserve lowers interest rates. When the economy is doing well, interest rates tend to go up.

That's the way it used to work.

Then we went through a decade of stupidly-low interest rates in the 10s, while the economy was doing decently well.

Maybe it was because of low interest rates. Though then you could argue capital just doesn't want to have to pay the price of operating in a borrowing environment where the average person can go down to the local bank, get a 90 day CD at 5-ish percent, and have a nice guaranteed source of steadily-growing rainy day cash, which, in turn, makes it less likely that they'll gamble it on stocks and bonds that capital holds most of its wealth in.

The Federal Reserve operates under a "dual mandate" from Congress to promote maximum employment and stable prices (low inflation). As unemployment rises, the Fed will lower interest rates to stimulate investment (increase employment opportunities).

That really just feels like they're operating with the mandate to keep the cost of labor low, and the main way to do that is by not paying people enough.

Can you explain how the Fed is keeping the cost of labor low, and what they should do to help folks paid enough? I'm not sure I see the connection.

> Can you explain how the Fed is keeping the cost of labor low...

The Fed calls workers being able to push for significantly increased salaries an "overheated labor market".

https://www.kansascityfed.org/research/economic-bulletin/ris...

"The same influx of immigrant workers that helped fill job openings also dampened wage pressures across the affected industries and states. At the industry level, sectors with some of the highest immigrant workforce growth, such as construction and manufacturing, saw the sharpest deceleration in wage growth (specifically, average hourly earnings) from 2021 to 2023."

Maybe I should expand it to say it sounds like they're under a mandate to keep people more-or-less economically stuck.

They need to keep employment high and keep prices stable. Their main lever for controlling these two things is the prime interest rate. They kept that rate low for a long time. Capital now thinks that being able to get money for cheap is the norm. If it can't get money for cheap, well, that's a problem, because capital's mandate is to get more capital.

If you're being incentivized to keep prices low and employment high by this institution, while also trying to accumulate capital for yourself, you are more likely to employ people at lower wages in order to keep prices low instead of taking the hit in reduced capital accumulation to employ people at higher wages while keeping prices low. Furthermore, any sort of sane prime interest rate now seems high to capital, so that additional cost is also factored in as why costs must rise and wages must drop to keep the accumulation rate of capital as high as possible.

Is there anything wrong with accumulation of capital? In and of itself, no, but when you have people with net worths in the hundreds of billions of dollars making the decisions on how to allocate resources for their own continued benefit, well, you get a reduction in economic returns for the rest of the economy.

If AI is the cause, it will only stimulate investment in more AI and accelerate the layoffs though. And because they don't have other tools, looks like this is exactly what they are going to do. Investment tends to concentrate massively at the festest-growing trend which this time is just replacing workers with AI.

Which will deepen the hole, until we crest over the AI peak of inflated expectations, bottom out in the trough of disillusionment, and start creeping up the slope of enlightenment. The next 12 months should be worsening unemployment, more rate cuts, higher AI stock prices. Once we bottom out in disillusionment (or companies run out of AI capital), the stock will plummet again, AI companies will die off, unemployment reduces, and rates return to previous levels.

That's the "exists-in-a-vacuum" picture anyway. Stimulus, tariffs, a new war, or some other bullshit will change the results.

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