The first US interest rates rise since 2006 is now just a few months away, according to the US central bank. Federal Reserve chair Janet Yellen said in her semi-annual testimony to the US Congress that she expects rates to rise before the end of the year, and noted that if the Fed delayed for too much longer, it could have to raise rates sharply later on. That would rattle markets and indebted firms and households. The US economy has strengthened since a bad-weather-induced dip in the first quarter of 2015.
What the commentators said
The latest data certainly suggest there is no need to wait. Many key indicators are in fine fettle, said Deutsche Bank tax receipts point to solid income growth; vehicle sales are at a ten-year high of 17.1 million a year; and initial jobless claims (which track GDP closely) are down by a fifth on their first-quarter average.
Meanwhile, remember that the slump in oil prices undermined investment earlier this year, said Justin Lahart in The Wall Street Journal. The impact of this decline on GDP should now fade. Had it been absent, first-quarter growth would have been 0.4% rather than -0.2%.
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Wage growth will be key to the timing of rate hikes, said Capital Economics. While the signals on that front have been mixed, there are signs it is poised to accelerate. More and more small companies say that finding qualified staff is their top problem, for instance. Wage growth looks set to rise to 3.5% next year. Expect the first hike in September.
Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
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