New jobs last month tripled expectations
Unemployment rate at 3.4%, lowest in 54 years
A soft landing for the U.S. economy is likely
Interest rates could rise by 0.25%p more than expected
As the U.S. unemployment rate hit its lowest level in 53 years last month and optimism about the U.S. economy spread, concerns over a prolonged period of high-intensity tightening initiated by the Federal Reserve are growing.
In an interview with Bloomberg News on the 6th (local time), Rafiel Bostik, president of the Federal Reserve Bank of Atlanta, said that the US economy was stronger than expected. “We will have to do a little more. That means we may have to raise interest rates more than I anticipate.”
At the end of last year, the Fed had proposed a median range of 5.0% to 5.25% for this year’s interest rate. President Bostic also suggested that the median of the Fed’s forecast would be maintained until next year, but it could rise by 0.25 percentage points more than the original estimate thanks to the recent strong recovery of the US economy.
At the Federal Open Market Committee (FOMC) meeting earlier this month, the Fed carried out the baby step of raising the base rate by 0.25 percentage points, and returned to ‘normal speed’ from high-intensity tightening in 11 months, but President Bostick said, “The range of increase is again 0.5 percentage points. There is a possibility of expanding it,” he added.
The U.S. added 517,000 jobs last month, more than three times the market estimate. The unemployment rate was 3.4%, the lowest level since 1969. Analysts say that these indicators suggest the strong resilience of the US economy, creating an environment in which the Fed can be more active in raising interest rates. In addition, overheating of the US labor market could lead to higher wages and thus stimulate inflation. Jerome Powell, chairman of the Fed, said at a press conference immediately after the Federal Open Market Committee (FOMC) on the 1st, “There is no disinflation (decline in inflation rate) in ‘core service prices’ excluding food, energy, and housing costs.”
The market, which was expected to freeze after the Fed implemented another baby step in March, also began to weigh in on a May freeze in response to the US’employment surprise’. According to the FedWatch of the Chicago Mercantile Exchange, which predicts the direction of the Fed’s monetary policy with futures rates, the probability that the Fed will take two more baby steps in a row after the release of the employment report will rise from the current 4.5-4.75% to 5.0-5.25% in May. As of midnight on the 7th, it rose to 69.9%. That’s a huge jump from about 40% last week.
Many analysts say that the possibility of a soft landing for the U.S. economy has increased despite concerns about the Fed’s prolonged tightening. One reason for this is that the ideal situation continues, where inflation is slowing but the unemployment rate is still low. Goldman Sachs lowered the probability of a U.S. recession in the next 12 months from 35% to 25%. U.S. Treasury Secretary Janet Yellen also appeared on ABC Good Morning America and said, “There will be no recession in the United States.”
Former Treasury Secretary Larry Summers, who predicted a serious economic recession in the US last year, said, “The US is not out of the crisis,” but “the possibility of a soft landing has increased compared to last fall.” Previously, the International Monetary Fund (IMF) had raised its economic growth forecast for this year to 1.4 percent, 0.4 percentage points higher than the October forecast, saying that the slowdown in U.S. inflation has become evident.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.