Features

Expect more US interest-rate rises

The odds of the US Federal Reserve having to raise US interest rates quickly are rising.

America's labour market is starting to look "drum tight", as David Rosenberg of Gluskin Sheff puts it. Payrolls expanded for the 91st month in a row in April, gaining another 164,000 people. The unemployment rate slipped to 3.9% from 4.1% in March.

The last time it edged below 4% was in 2000, at the peak of the dotcom boom; the previous occasion was January 1970. Average hourly earnings barely rose in April, however, climbing by 0.1% and keeping the annual pace of growth at 2.6%.

But subdued wage growth is unlikely to be with us for much longer. Average hourly earnings are the "laggiest of the most lagging inflation indicators", says Rosenberg. The average also conceals the fact that high-earning baby boomers are gradually leaving the workforce and being partly replaced by lower-paid entry level workers whose pay is now accelerating, according to surveys of job offers available for graduates.

The number of workers voluntarily leaving their jobs, moreover, is historically high, reflecting growing confidence among employees. And the wider U-6 measure of unemployment, including part-time workers who would like a full-time job and discouraged workers who have not sought a job in the past four weeks, is at a 17-year low of 7.8%. Add this all up, and the odds of the US Federal Reserve having to hike interest rates quickly because they will be taken by surprise by inflation are rising.

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
What the race for the White House means for your money
US election

What the race for the White House means for your money

American voters are about to decide whether Donald Trump or Joe Biden will take the oath of office on 20 January. Matthew Partridge explains how vario…
15 Oct 2020
The riskiest election in US history
US election

The riskiest election in US history

Donald Trump’s illness has rattled markets as investors try to understand the implications of an incapacitated American president or a bitterly contes…
8 Oct 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020
What would negative interest rates mean for your money?
UK Economy

What would negative interest rates mean for your money?

There has been much talk of the Bank of England introducing negative interest rates. John Stepek explains why they might do that, and what it would me…
15 Oct 2020