Status: 07/08/2022 16:48
The US labor market is booming: more jobs were created in June than expected. According to economists, this signifies the green light for the US Federal Reserve to further sharp increase in interest rates.
In June, more jobs were created in the United States than expected: 372,000 jobs were added outside of agriculture, the US Department of Labor reported in Washington. On average, analysts expected only 265,000 new jobs. The separately calculated unemployment rate remained at the level of 3.6%. last month – a level that should be in line with the Fed’s target of full employment.
Prices on the stock market are falling after strong employment data
In the face of a strong labor market and rising inflation at the same time, the US Federal Reserve recently raised key interest rates more than ever since 1994. It decided to increase by 0.75 percentage points to the range from 1.50 to 1.75 percent. Monetary authorities are considering a 0.5 or 0.75 percentage point hike at the end of month meeting. Investors in US stock markets are therefore concerned that aggressive interest rate hikes will stop the economy. And so, three major indices on Wall Street open in the red after the publication of the June employment report. DAX also returns some of its profits.
Employment almost like before Corona
Thomas Gitzel, VP-Bank chief economist, told Reuters news agency that total employment has returned to almost pre-krone levels. Recruiting new employees is a difficult task for companies. At the same time, Gitzel estimates that wage growth will remain at a high level of 5.1%. However, wage growth is not enough to compensate for inflation of 8.6%. “In real terms, wages continue to decline. That is why we should not expect major jumps in US consumption at the moment. US citizens will have to tighten their belts – despite good development in the labor market,” said VP Bank’s chief economist.
Employment data strengthens Fed interest rates
The question is whether the US Federal Reserve will use the good labor market data as an opportunity for even larger interest rate hikes in the coming month. LBBW’s Dirk Clench believes the Fed should find no reason in the June employment report to postpone the announced large rate hikes. The economists from Helaba are of a similar opinion. They believe the US labor market is still very strong, “so the labor market report does not stand in the way of the Federal Reserve’s plans to raise its key interest rate range again by 75 basis points in July.”
Central bankers face a dilemma
Bastian Hepperle of Hauck Aufhäuser Lampe’s private bank is a bit more skeptical. “Employment growth is still impressive but has slowed down in the last four months. That’s good because the slowdown is good for the US job market. ” In Hepperle’s opinion, however, the heavy burdens caused by inflation and the upcoming interest rate increases in the US will increasingly burden the US economy. If fears of a recession increase, the propensity of firms to hire is diminished. The labor market may therefore stand in worse times.
Central bankers are faced with this dilemma: on the one hand, they have to keep high inflation in check, but on the other hand, financing conditions for companies and households may deteriorate due to increased interest in the rate. Loans then become more expensive, which in turn harms economic growth.