Despite weak employment creation data, analysts at DWS point out that the US labour market probably remains too vigorous in general to justify the Fed cutting interest rates.
US monetary policy
J. P. Marín-Arrese | US Federal Reserve Chairman Jerome Powell faces the dilemma of choosing the right path, confronted with conflicting data and forecasts. While the US economy grew at a booming 4% rate in the first quarter, inflation trails far behind the Fed’s objective and salaries fail to pick up despite historically low levels of unemployment. Moreover, the trade tug-of-war with China is denting confidence in consumers and investors alike. Should the conflict turn worse, the economy might suffer a harsh blow.
Financial markets expect the US Federal Reserve (Fed) to raise its federal funds target rate on Wednesday for the fourth time this year, by 25 basis points (i.e. between 2.25% and 2.50%). Looking ahead, the FOMC will likely revise its “dots” lower for 2019, while the Fed will emphasise data dependence as relevant for its policy stance, rather than guidance by FOMC ‘dots’.
The markets are becoming increasingly sceptical about Trump’s ability to enforce any coherent economic policy mix. Even if his advisors in this field are seasoned bankers, the White House is rapidly losing its grip on critical decision-making areas, such as the budget stance.
The outstanding labour market performance in the US has triggered widespread speculation of a Fed rate hike as early as September. Nonetheless, most new jobs are part-time, while the hourly wage increase lags well behind its pre-crisis pace.
James Alexander via Historinhas | We often hear from both the right and the left that the relative lack of growth in the US is mostly due to supply issues, in particular changing demographics. Those baby-boomers retiring have created a new stagnation. The US Bureau for Labor Statistics (BLS) has consistently encouraged this view. There’s really nothing that can be done about it.
The FED not only held unchanged its rates in its last FOMC meeting last week. It plunged investors into utter disarray by delivering an extremely dovish message on future action. The prospect of a hike this year loses steam while bewildered markets pull back to the waiting game.
Barclays | We expect the Fed to remain on hold at its September meeting, deferring rate hikes while it assesses renewed risks to the outlook.
LONDON | June 19, 2015 | UBS | There are some striking similarities currently between the US and UK labour markets. The unemployment rates are broadly the same, employment growth is similar, and the level of vacancies suggests continued jobs growth in both countries. Moreover, there are solid signs that pay growth has picked up in both the UK and US.
WASHINGTON D.C. | March 18, 2015 | By Pablo Pardo | On December 19, 2008, George W. Bush announced that the US would allocate $13.4 billion to rescue General Motors. Between April 22 and June 1, 2009, Barack Obama provided the company with $36.1. In the end, the state ended up with a 61% of the stake of what is still the second largest car manufacturer in the world.