In an attempt to control inflation despite the strength of the labor market and wages

Expectations of the Federal Reserve continuing to raise interest rates

Federal Reserve Chairman: Wages are not primarily responsible for inflation.

AFP

Banking sources in the United States expected that the US Federal Reserve will keep its course in increasing interest rates, as part of its continuous attempts to calm the economy and curb inflation, while the jobs report for the month of June reinforced the image of the labor market, which is still strong despite warnings of a recession.

Although positive labor data supports the administration of US President Joe Biden, rapid price increases are worrying economic policy makers of an increase in the rate of inflation.

wages and employment

The US labor report showed a slight dip in wage increases, but employment and corporate profits remained strong enough to reinforce the view among Federal Reserve officials that the labor market is out of control, with demand for employment rising far more than available workers.

The Federal Reserve is likely to raise interest rates at its next meeting to constrain consumer and business spending and force the economy back into balance.

reassuring data

"We're starting to see the first signs of a slowdown, and that's what we need," Atlanta Federal Reserve Chairman Rafael Bostick said in an interview with CNBC, describing the wage data as reassuring.

"We are moving in the right direction, but there is still a lot to be done," he added.

interest rates

Federal Reserve officials began raising interest rates from nearly zero last March in an attempt to raise the cost of borrowing.

Last month, the interest rate rose by 0.75 percentage points, the largest single increase since 1994. Normally, interest rates are raised by only a quarter point, but the pace has increased because of the alarmingly fast rise in the rate of inflation.

While the Federal Reserve said it was discussing a move of 0.5 or 0.75 percentage points at a meeting on July 26-27, officials said they would support a second move of 0.75 percentage point, given the speed and strength of the inflation rate.

The New York Times quoted Wall Street experts warning that the Federal Reserve's policies could lead to a recession, as the decline in economic growth data, the housing market and factory orders raised concern that America is on the brink of deflation.

Biden administration

President Biden celebrated the report last Friday, criticizing the opposition that claimed the economy was too weak, saying, "We're still adding more jobs than any administration in nearly 40 years."

Private sector voices agreed with Biden's view that the employment report showed an economy that does not appear to be deteriorating.

"Wage growth remains high, and job loss rates are low," said Nick Bunker, director of economic research at employment site Indeed.

"We will witness a recession one day, but not now," he added.

Rapidly rising prices and declining economic growth posed a challenge to President Biden, who showed his sympathy with consumers, but the president's popularity declined with the price growth, especially in recent months with the rise in fuel prices, which exceeded five dollars a gallon.

Biden said fighting inflation was his top economic priority.

"I know times are tough, prices are very high, and families are facing a cost-of-living crisis, but my economic plan is moving the country in a better direction," he added.

Unemployment and employment

As prices add to consumers' suffering at the gas pump and in the grocery store, the Federal Reserve believes it needs to get inflation under control quickly to put the economy on a healthy, sustainable growth path.

Officials expect unemployment to rise eventually, as interest rates rise and the economy weakens, although they hope it will rise only slightly, at a time when policymakers at the Federal Reserve are still hoping that employment will slow gradually, but without flooding. The economy is in a painful recession.

Federal Reserve officials are keeping a close eye on wage data in particular.

Average hourly earnings rose 5.1% through June, down slightly from 5.3% in the previous month.

The wages of non-managers increased by 6.4% from the previous year.

Although the pace of increase is slowing somewhat, it is still much higher than normal and could keep inflation high if it continues.

“Wages are not primarily responsible for the inflation we are seeing, but going forward, they will be pivotal, especially in the service sector,” Federal Reserve Chairman Jerome Powell said at his press conference last June.

If it raises interest rates by 0.75 percentage points this month, it will raise interest rates to a range of 2.25 to 2.5%, and officials have indicated the possibility of increasing borrowing costs by another percentage point by the end of the year.

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