Paul Krugman Says Economy Probably Still Running Hot: 'What Matters Are…'

Nobel laureate and noted economist Paul Krugman argued that the economy is probably still running hot but what matters are market expectations about future Federal Reserve policy.

The Labor Department’s monthly Job Openings and Labor Turnover Survey (JOLTS) report, released on Wednesday, indicated some cracks in the labor market, according to a Reuters report. Layoffs increased to a two-year high in January and job cuts were higher than initially thought in 2022, the report said adding that fewer people voluntarily quit their jobs. There were 1.9 job openings per every unemployed person, down from 2 in December.

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"JOLTS came in … confusing, with openings barely down but quits down substantially. So the labor market either isn’t cooling or it is. Fwiw, private job openings measures do suggest cooling," Krugman tweeted.

On Wednesday, Fed Chair Jerome Powell concluded his second day of testimony before Congress, reaffirming his message that the central bank will resort to faster rate hikes if needed and that it is closely watching economic data in the coming days. The SPDR S&P 500 ETF Trust (NYSE:SPY) closed 0.16% higher while the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) gained 0.5%.

Jobs Report: Krugman pointed out that although the jobs report may be keenly watched out for, it should be read with a bit of caution.

"You might think that Friday’s job report will provide clarity. But revisions have been so large lately, especially on wage growth, that we’ll have to take it with a few tablespoons of salt. Also, JOLTS now has a terrible response rate," he said in his tweet.

The Nobel laureate argued that the economy probably is still running unsustainably hot.

"I can see the case for 50 (bps) from the Fed, but also the case for not, and honestly it probably doesn’t matter much. What matters are market expectations about future Fed policy, which will largely be driven by data," he said in his tweet.

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