Federal Reserve: Labour strength supports further hikes – Nordea

Nordea analysts Ole Håkon Eek-Nielsen and Jan von Gerich argue that the Federal Reserve is likely to deliver three more rate hikes over coming quarters to bring inflation back to target. They highlight falling unemployment, constrained labour supply and rising core PCE and service price inflation as key drivers. The authors stress that wage pressures and higher goods prices could justify additional policy firming.

Fed path tied to labour and inflation

"But at the end of the day, the interest rate decision will come down to unemployment and inflation."

"Perhaps even more tellingly from the June-meeting minutes; in the case of a stable labour market and still-elevated inflation, “almost all of these participants indicated that some policy firming would likely be warranted”."

"If government employment turns around, job growth could easily become more than sufficient to push unemployment lower, especially given the weak growth in the labour supply."

"All in all, we see reason to expect the stable — if not strengthening — labour market that FOMC members had in mind in their scenario."

"We could even be heading for higher wage pressure and stronger service price inflation."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)