US economy

Has tighter monetary policy slowed the pace of US hiring?


Has Fed tightening slowed down the US jobs market?

US hiring is expected to have slowed in July, as investors and economists wager that the Federal Reserve’s rapid series of interest rate increases will have started to affect the labour market.

The labour department is forecast to report that the US added 255,000 jobs in July, according to a Reuters survey, down from 372,000 in June. The unemployment rate is expected to hold steady at 3.6 per cent.

Market watchers have been anticipating a slowdown in the labour market for months. While hiring has weakened modestly this year, forecasts have undershot the data since April. But the Fed’s dramatic efforts to rein in inflation are expected to eventually take a bite out of US hiring.

Weaker data from July would compound fears that a recession is looming. Those fears came to a head last week when the US reported that gross domestic product had contracted for the second consecutive quarter. That fits one common definition of a recession, although, an official call will be made later by the National Bureau of Economic Research. A big move higher in unemployment, or a significant dip in hiring, would raise the likelihood of recession and could push the Fed towards more moderate interest rate rises in the future.

“A deceleration in hiring towards the early consensus of 250,000 would fit the current [Federal Open Market Committee] view that hiring can slowly soften without deleterious effects. A sub-150,000 reading would challenge that thesis and argue for a marginally smaller tightening,” said Ed Acton, an analyst at Citigroup. Kate Duguid

Will the Bank of England raise interest rates by the most since 1995?

The Bank of England could raise interest rates by half a percentage point at the next meeting of its Monetary Policy Committee. A half-percentage point interest rate rise would be the central bank’s biggest increase in rates since 1995.

Earlier this month, governor Andrew Bailey raised the prospect of a hefty rate rise and said the central bank faced the “largest challenge” to inflation control since gaining independence on rate setting in 1997.

The central banks has been under mounting pressure to curb inflation, which rose to a 40-year high of 9.4 per cent in June. The rise in inflation has triggered a wave of industrial action as workers press for wages to match price rises.

The rate of UK inflation in June was the highest among the G7 group of large advanced economies. The Office for National Statistics said the main driver was petrol prices, which rose by 18.1 pence per litre, the largest jump since equivalent records began in 1990.

Only 29 per cent of the 277 categories checked by the ONS were rising in price by an annual rate less than 4 per cent, double the BoE’s inflation target.

Analysts say prices are likely to continue to rise, with further hikes in energy expected in October, but some economists drew comfort from evidence that surging prices were increasingly concentrated in food, energy and fuel, which suggested that inflation was no longer spreading more widely through the economy. Leke Oso Alabi

Will Turkish inflation crack 80%?

Much of the world is struggling with inflation, but Turkey is suffering more than most. The central bank’s pursuit of an unconventional monetary policy has unleashed annual inflation of nearly 80 per cent as the lira hits record lows.

Inflation is expected to hit a fresh two-decade high when the state statistics agency releases data for July on Wednesday, analysts said. It recorded 79 per cent inflation in June, the highest among G20 nations.
 
Under pressure from President Recep Tayyip Erdoğan, Turkey’s central bank has bucked the global trend of raising interest rates to tame inflation and has left its benchmark at 14 per cent since December.

Erdoğan wants cheap exports and credit to power economic growth before next year’s general election. He also argues high interest fuels inflation, while economists believe the opposite is true. The Turkish president recently called those who subscribe to mainstream economic theory “either ignoramuses or traitors”.

Şahap Kavcıoğlu, the central bank’s governor, last week blamed the war in Ukraine and other external factors for the surge in prices. He raised the year-end inflation forecast to 60.4 per cent from a previous 42.8 per cent and promised “a rapid fall in inflation will be achieved towards levels in harmony with our forecasts”.

The steep jump in the cost of living is hitting low-income households especially hard, with housing, food and transport costs rising fastest. A third of Turks earn a net minimum wage of 5,500 lira a month, or $307 after the lira lost half of its value in the past 12 months.

Goldman Sachs expects low interest rates to continue “fuelling headline inflation further and substantially derailing year-end inflation expectations. We forecast inflation to rise to 90 per cent and only fall to 75 per cent year-on-year at end-2022 with the help of base effects,” it said in a recent research note. Ayla Jean Yackley



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