As unemployment falls, interest rates rise more and more

Federal Reserve officials have signaled they are set to hike interest rates this year as they try to curb high inflation, and new data showing the unemployment rate has lowered should keep them on track to withdraw their support for the economy. .

The unemployment rate fell to 3.9% in December, based on data collected in a period well before the worst virus wave caused by Omicron in the United States. Unemployment peaked at 14.8% in April 2020 and had hovered around 3.5% for months before the start of the pandemic. Fed officials expect unemployment to return to pre-pandemic levels by the end of the year, as their economic projections released in December showed.

The rapid return to near-normal unemployment rates has led many central bankers to determine that the United States is moving closer to what they believe to be “full employment,” even though millions of former employees don’t. have not yet re-entered the labor market.

Partly because signs abound that jobs are plentiful, but workers are hard to find: wages are rising rapidly, vacancies are at high levels and the proportion of people leaving their jobs has just beaten. a record. Employers are complaining that they are having trouble hiring, and the shortage of workers has led many companies to cut hours or cut back on services.

“Several participants considered labor market conditions to be broadly compatible with peak employment already,” according to the December Fed meeting report, released earlier this week. Others said the economy was making “rapid progress” towards this goal. Some have suggested that it might be wise to raise rates before maximum employment is reached, given skyrocketing inflation.

Fed officials fear that rising wages and limited output could help keep inflation – now near its highest level in 40 years – at a high level. The price gains have been uncomfortably fast over the past year. The combination of a healing labor market and the threat of runaway inflation has prompted central bankers to speed up their plans to withdraw political aid to the economy.

They could hike rates three times in 2021, based on their estimates. This would make loans for cars, homes and business expansions more expensive, slowing spending, hiring and growth.

“It makes sense to start as soon as possible,” said James Bullard, chairman of the Federal Reserve Bank of St. Louis, on a call with reporters Thursday, suggesting the measures could come very soon. “I think March would be a definite possibility.”


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