Underlying jobs market is still very weak despite strong report, says KPMG's Diane Swonk

1/9/2026 9:18:34 PM	medium term cautious down	21 days later	+2.10%	-1.05%
11/14/2025 9:03:18 PM	short term up	7 days later	-2.30%	-2.30%

Introduces Diane Swonk's view that two rate hikes are on the horizon due to rising inflation.

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Diane Swonk

The headline jobs report is misleading; the labor market is weak under the hood (household survey, U6 underemployment at 8.2%). Rate cuts cannot fix labor market issues.

Inflation is much more sticky and will persist longer due to the Iran war. Inflation expectations (NY Fed survey) are rising in both near and long term. The Fed has missed its target for five years, and there is a 'muscle memory' of raising prices.

Cites 3.2% core inflation (highest in 30 years pre-pandemic) and asks if this is a price shock requiring looser policy, referencing Bernanke's research on oil shocks.

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Diane Swonk

This is not just an oil shock; it's a multi-shock environment (oil, supply chain, lingering fiscal stimulus) with ripple effects. Inflation is sticky, especially in super core services, which was accelerating even before the Iran shock.

The Fed has been too dovish. Persistent shocks amid high uncertainty lead to more persistent inflation. The Fed should not repeat its post-pandemic mistake of being too slow to act.

Notes that at least three of four Fed dissents favored tighter policy.

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Shows a chart of PCE services ex-energy, ex-food, ex-shelter, which is elevated at ~3% vs. pre-pandemic 2%, confirming upward pressure on inflation.

Cites Goolsbee saying he's still worried about inflation even excluding energy. The job market is not creating inflationary pressure (wages +0.2%, hours worked up), so the case for rate hikes is purely on the inflation mandate.

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