Page 9 - ISO April 2023

INVESTMENT STRATEGY QUARTERLY

Long
COVID

Immigration

Opportunity
Cost

Total US Visas Issued
During Fiscal Year are almost impossible for policymakers to affect, the immigra-
12,000,000
tion issue is one of those partial solutions that could help
increase the labour force participation rate and is in the pur-
10,000,000
view of the political establishment to achieve.
8,000,000

6,000,000 KEY TAKEAWAYS:
• Labour force participation refers to the percentage of
4,000,000
the population who are either employed or actively
2,000,000 seeking employment. Overall, labour force partici-
pation has declined in the US over the past several
0 decades.
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
• The COVID-19 pandemic caused a significant drop in
Source: FactSet, as of 19/3/2023
labour force participation, we are still 0.8% lower than
former employees as the economy reopens, as many of their what it was pre-pandemic, so where did all these people
former employees are reluctant to return to their old jobs.” The go?
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research points out that these factors will probably fade out in the
future but that this is not guaranteed. • Most of these missing workers are likely a combina-
tion of early retirees, individuals who passed away
The Fed has allowed the rate of inflation to overshoot its 2% from COVID-19, those with long COVID, a reduced
target for two years and now need to push this ‘over the number of immigrant visas, and those who worked
longer-run’ average down as fast as possible. In fact, as we from home during the during the pandemic and don’t
have said before, the Fed will probably have to undershoot the want to return to the office.
2.0% target on inflation for several years in order to achieve its • The question of whether there is more or less slack
2.0% target ‘over the longer run.’ Thus, one of the factors in the US labour market is one of the most con-
potentially threatening this strategy is the strong US labour sequential questions for monetary policy going
market. For this reason, we expect the Fed’s stance to remain forward, as it will determine how high and for how
hawkish for longer, rather than return to a more accommoda- long the Fed is expected to remain hawkish/dovish
tive stance in the short to medium term. Although many of the on the inflation front.
reasons for individuals not coming back into the labour force

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