Higher rates: IMF deputy managing director Gita Gopinath
Signs of a cooling US jobs market yesterday added to hopes that the Federal Reserve has finished raising interest rates – and will steer the world’s biggest economy towards a ‘soft landing’.
Closely-watched non-farm payroll figures showed the economy added a slightly larger than expected 187,000 jobs last month. But the unemployment rate jumped from 3.5 per cent to 3.8 per cent while job gains from June and July were revised lower to show 110,000 fewer than previously thought.
The figures cemented expectations that the Fed – America’s central bank – will not hike rates this month and increased bets that they will also remain unchanged in November. The Fed has jacked up rates by 5.25 percentage points since March 2022. That has slowed the economy enough to cut inflation to 3.2 per cent.
And that has raised hopes that the goal of bringing inflation down can be achieved without having to hike rates so much that the Fed creates the ‘hard landing’ of a recession.
Yesterday’s jobs data added to those hopes, helping Wall Street stock markets open higher while the dollar weakened.
Janet Mui, head of market analysis at RBC Brewin Dolphin, said: ‘The data suggests the US labour market is loosening but still in good shape, which supports the case of a ‘soft landing’. The Fed may see additional rate increases as putting unnecessary stress on the economy as inflation is heading in the right direction.’
Attention is now turning to when the US might start to cut rates – with the possibility that may be next year.
But markets are also being urged to get used to the idea that global rates will not go back to the near-zero levels seen in recent years.
IMF deputy managing director Gita Gopinath told a conference in South Africa that they were expected to remain high for ‘quite some time’ and might never return to the era of ‘low for long’.
Meanwhile, in the UK and Europe the goal of a soft landing is looking harder to reach – with dire manufacturing figures showing the painful effects of rate rises. Purchasing managers’ index figures showed UK factories suffered their weakest month in August since May 2020, at the height of the pandemic.
In the eurozone, the sector also remains stuck in reverse gear – led by a downturn in Germany, now dubbed the ‘sick man of Europe’.
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