November 10, 2026 The Economic Outlook and Some Thoughts on Labor Market Dynamism Governor Christopher J. Waller At the Bank of England Watchers Conference King’s Business School and Money, Macro and Finance Society, London, United Kingdom Share --> --> --> --> --> --> Watch Live Thank you, Paul, and welcome to Bank of England watchers, who I suspect are watching the Federal Reserve as well. 1 My subject today is the outlook for the U.S. economy and the implications for monetary policy. I think there is little disagreement about the basics of that outlook. The U.S. economy is growing strongly, with a labor market that has brought employment close to its long-term rate. But inflation remains too high, so I will explain why I believe further tightening of monetary policy will be needed, sooner rather than later, to return inflation to a path that will reach 2 percent in the medium term. The outline of my speech is to first explain why I voted to hold the policy rate steady at the most recent meeting of the Federal Open Market Committee (FOMC). Then I will talk about the general state of the U.S. economy. After that, I will ask some open-ended questions about the dynamism of the U.S. labor market that are important to consider over the longer run. I'll follow that by a discussion of recent inflation data and then describe my views about the future path of monetary policy. At our most recent meeting, I supported the FOMC majority in holding monetary policy at its current setting. As I said in a speech a couple weeks before then, my rationale was that the Committee's communication about the likely tightening of policy had already led financial markets to price in some tightening. 2 When this communication is clear and credible, what really matters is that those hikes are eventually carried out—it is not necessary, for example, to raise rates at consecutive meetings. If, however, the hikes are not carried out, markets will reduce expectations of rate hikes and rates will immediately fall, which would loosen monetary policy in an undesirable way. So, while the precise timing of the hikes doesn't matter, ensuring that the promised hikes are implemented in a reasonable period of time does. Let me turn to the economy. Economic output continues to grow at a healthy pace. The initial estimate was that real gross domestic product (GDP) rose 3.4 percent in the third quarter, supported by strong consumer spending and robust investment. Consumption growth was helped by a booming stock market, and investment by businesses continued to surge, especially in high-tech equipment associated with the artificial intelligence (AI) buildout. I expect GDP growth is backing off a bit in the current quarter, as consumer spending slows to levels that I think are more consistent with household income and wealth, but output will continue to grow at a solid pace. The labor market has also been solid. The unemployment rate ticked down to 4.1 percent in October, the same rate it was over the summer. Job creation, which has been fluctuating widely month to month for some time, saw October gains of 165,000 jobs and 85,000 jobs added to estimates of the previous two months. To look through the volatility, the 6-month and 12-month average payroll gains have been closer to 80,000 jobs a month. This level is a bit above most estimates of the breakeven level needed to keep the unemployment rate steady but entirely consistent with my view that the supply and demand for labor are in rough balance. While the labor market has been stable, for over a year now it has been what is best characterized as "low hire, low fire." One can understand this characterization by looking at job separation and hiring rates today and comparing them with what they were before the pandemic (see figures 1 and 2 ). You will see that the rate of separations, the sum of layoffs and quits, has been persistently low the past few years compared with a decade ago. The hiring rate is also low. This is unusual because, in a strong labor market, the hiring rate is usually high. Hiring tends to be low when the labor market is weak, which is when the firing rate is often elevated. What is unusual today, and may be unprecedented, is the extent to which both firing and hiring are now so low. These data have led me to consider a question that has longer-term implications for the economy and monetary policy: Does a stable labor market necessarily mean it's a healthy labor market? To illustrate the difference, if your mom was in the hospital and the doctor told you her condition was stable, you would be relieved but you wouldn't say she is healthy. I am concerned that the low hire, low fire equilibrium in the labor market means it has lost some of its dynamism, which is important for productivity growth and real wages. If the labor market is in fact showing less dynamism, is it an issue for monetary policy? While I don't have answers to these questions, I do think the questions are worth asking. This discussion starts with distinguishing between net employment growth and gross flows in and out of employment. Behind the monthly job creation numbers that get most of the world's attention is the enormous churn in the labor market. For example, the 60,000 jobs created in September was a net change in the level of employment, but it is dwarfed by the more than 5 million people who left their jobs that month and the more than 5 million who were hired. Despite the low separation and hiring rates, the level of separations and hiring is huge. When I was a professor, I would use the following analogy for my students. If you stand by a river, you can measure the water level. If you return the next day and measure again, you will likely find that the water level is unchanged—it is stable. But in fact, a massive amount of water has flowed downstream since the day before. The same goes for the labor market—there is a lot of churning even if the level of employment is stable. The question is, does churn in the labor market matter? If so, is labor market churn bad or good? One could argue that this churn is inefficient. Why are people and firms wasting time swapping workers across jobs? If workers simply stayed at their firms, and firms never let them go, employment would be stable and resources would be saved from putting workers into new jobs. But would it mean the labor market is healthy? The answer is that the churn in hiring and firing is actually good for the economy. This churn reflects a dynamic market that allows labor resources to be allocated to more productive uses. If a worker and firm are not in a good, productive match, then it is more efficient and better for the economy for the worker and firm to separate and look for new partners. When more productive matches are formed, productivity, real wages, and profits will be higher. In this situation, employment may not be stable, but it is healthier. I believe this churn is what leads to the exceptional performance of the U.S. economy. The relative ease of starting businesses in the United States, compared with many other advanced economies, is a big advantage. The relative ease of firing employees, compared with many European Union economies, is surely not welcome by the workers affected, but cumulatively it was a factor that drove the stronger recovery in the United States from the pandemic recession. This flexibility in hiring and firing promotes a better match between skills of the worker and those demanded by businesses, making the most productive use of their abilities. As a result, this churn boosts the capacity of the economy and allows incomes to grow without inflationary pressure. So, given this discussion, how do we interpret the current low hire, low fire economy? Does it indicate that the U.S. labor market has become less dynamic and less healthy, which has implications for the economic outlook and for monetary policy? I will first consider the possible causes of this lower dynamism and then the possible implications. One explanation for the lower dynamism is that some of the decline in both hiring and firing may reflect, in part, a continuation of longer-run trends that were in place even before the pandemic. First, it is well known that the workforce is aging for a number of reasons: People are living longer and are healthier and more active at older ages; many members of the large post–World War II baby boom are in their 60s and 70s; and birth rates have declined, which increases the relative age of the workforce. This aging affects the dynamism of the labor market because older workers switch jobs less frequently, since many have managed over time to find better job matches and because older workers are less likely to relocate for work. The second trend is that the level of education of the workforce is increasing over time. More educated workers experience less job churn in general and, during downturns, face lower rates of job separations. Since 2010, the share of adults 25 and older with at least a bachelor's degree has increased from 28 percent to 37 percent. 3 If these were the only reasons for the decline in labor market dynamism, then it would be at a level consistent with these trend factors, suggesting an appropriate degree of dynamism with no implications for monetary policy. But the data suggest that, even after accounting for these factors, labor market dynamism still seems somewhat low. There are several possible reasons. One is that hiring and job-switching may have been restrained by the confluence of factors that have raised economic uncertainty since early 2025: the advent of AI, tariffs, changes in immigration policy and enforcement, and a general level of uncertainty about the economic outlook that has made business planning particularly challenging. One piece of evidence was a special question posed in the Federal Reserve's November 2025 Beige Book survey of economic conditions: Employers reported in November 2
