Central bankers agree on one thing: nobody is hiring, and nobody is firing

The same labour market, on both sides of the Atlantic

Two central bankers, on two sides of the Atlantic, used the same phrase this week to describe their labour markets: low hire, low fire. Federal Reserve Governor Christopher Waller said the US labour market is currently characterised that way, and the Bank of England's Clare Lombardelli described the UK market in the same terms, cooling through reduced hiring rather than increased redundancies. m:…7383 m:…7384

The numbers behind the phrase look similar too. US unemployment was 4.1% in October, with payrolls up 165,000, and real GDP rose 3.4% in the third quarter. In the UK, unemployment has risen only gradually and redundancies remain relatively low. The problem, as Lombardelli frames it, is that a low-hire, low-fire market protects those already in work while making it harder for new entrants to find jobs and for workers to move into more productive roles, and people are changing jobs less often. m:…7383 m:…5124 m:…7384

That immobility has a cost. Lombardelli argues that low labour market mobility weakens productivity and growth, and that the economy's ability to adapt to AI-driven change depends on mobility. Waller makes the same connection from the other side: more than 70% of core PCE service price components saw 12-month increases above 3% in September, and September core PCE inflation ran at 3.1% annually. A labour market that does not reallocate workers easily is also one where wage pressures ease more slowly, and Lombardelli notes higher unemployment may do less to ease wage pressures than in the past, because of poor job matching. m:…7384 m:…7383

Independence under pressure

The policy implication is that the Fed is likely to tighten into this labour market rather than wait for it. Waller supports a 25-basis-point increase at the December meeting, and has said a 50-basis-point move should be considered if October CPI inflation resembles the past two months. Michelle Bowman, in a separate speech, said US real GDP likely rose by more than 3% in the third quarter and core PCE inflation likely moved up to 3.3% in October, and noted she had supported holding the federal funds rate target range at 3.75% to 4% at the October meeting. m:…7383 m:…7379

Andrew Bailey used his own speech to defend the institution doing the tightening. Central bank independence is essential for navigating a world prone to frequent supply shocks, he argued, and independence depends on public accountability and legitimacy. His warning was that financial stability decisions face more intense lobbying and political contestation than monetary policy decisions, the part of the job where independence is tested first. m:…7390

The AI debt question

Bailey also put AI on both sides of the ledger. AI investment is contributing to economic resilience in the UK business services sector, he said, but AI poses risks to financial stability through potential asset price bubbles, frontier AI has increased the risk of cyber-attacks, and financial markets may overvalue AI returns because valuing uncertainty is hard. His caution was that AI returns may take longer to be realised than market expectations predict. Bowman made the same point with numbers: AI-related debt is on track to exceed $800 billion in 2026, while AI-related revenues are currently insufficient to cover the expense of maintaining and developing AI models and data centres. Hyperscalers and large tech firms have assumed off-balance-sheet liabilities to facilitate AI financing, and the Federal Reserve is monitoring risks to financial stability from AI-related financing structures. m:…7390 m:…7379

One policy, many realities

The euro area adds a complication the single-currency bloc cannot avoid. De Nederlandsche Bank president Olaf Sleijpen argued that one policy must serve 21 countries and about 360 million people whose households differ in income, wealth, savings, debt, housing and job security, and whose inflation rates differ too, with the Netherlands at 3.3% in October and Lithuania above 6%. Interest rate increases affect households differently, through savings returns or mortgage payments, and some firms postpone investment while others are unaffected. Sleijpen's prescription is deeper European capital markets, sound fiscal frameworks and a stronger single market. m:…7382

The European Central Bank's Philip Lane closed the circle with a note on how central banks talk. Communication steers the expectations of financial market participants, he said, and the tools for analysing that communication have moved from dictionary-based methods to machine learning and large language models, which account for context rather than counting words. When the message is that nobody is hiring and nobody is firing, how the message is read matters as much as what it says. m:…7381