SINCE interest rates hit rock-bottom in 2009, the Federal Reserve has repeatedly made optimistic forecasts about when they would start rising, only to delay the big day again and again. If the Fed has been a bullish coach, the markets have been trusting fans, continually believing that an increase is imminent, only to have their expectations dashed. At last, however, the moment seems to have arrived. On December 16th, when the Fed’s rate-setting committee meets, it seems all but certain to raise rates.
For that, thank the strength of the labour market. Unemployment, at 5%, is as low as most analysts reckon it can sustainably fall. During the recession, America lost 8.7m jobs. It has since gained 13m. In 2010 there were six unemployed workers for every job opening; today there are 1.5.
Wages, long stagnant, finally appear to be growing again, too. In September, when the Fed toyed with raising rates, average hourly pay had just grown by 2%, on an annualised basis, over the prior three months. Now that has risen to 2.8% (see chart). By one measure, wages grew by fully 4% in the third quarter of the year. Accelerating pay suggests that...Continue reading
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