New | Time for the Federal Reserve to raise interest rates
US central bank may tighten credit on strong increase in jobs and better hourly earnings, but move could hit bond prices and push up yields
When the United States Federal Open Market Committee meets over the next two days, the moment may have finally come to tighten monetary policy or at least signal such a move should be expected in September.
Solid jobs data and better average hourly earnings substantiate the arguments for a rise in interest rates, but the process itself could yet end with markets driving up yields faster than the Fed might like.
Emergency monetary policy settings, adopted to deal with the 2008-09 global financial crisis, now seem inappropriate.
"We are at the point of absurdity," said Larry Lindsey, the chief economic adviser to former president George W. Bush, at the Peterson Institute US fiscal summit last month, even before non-farm payroll data that showed a solid 280,000 increase last month, accompanied by a rise of eight US cents in average hourly earnings to US$24.96, taking the cumulative rise over the year to 2.3 per cent.
Last month, 148.795 million Americans received average weekly earnings of US$861.12, compared to 145.868 million and US$841.80 respectively in May last year. When the numbers are looked at like that, it is hard not to have some sympathy for Lindsey's position.
While the unemployment rate has fallen to 5.5 per cent from 6.3 per cent in May last year, the price inflation measure of personal consumption expenditures, which is often emphasised by the Federal Reserve, is not yet accelerating.