The US economy is closing the year with several outstanding results. Among the most significant is the decline in inflation, from almost 9 percent last year, to around 3 percent last October, as measured by the personal consumption expenditures price index, still above the central bank objective of 2 percent.
Another outstanding result is that declining inflation has been accomplished with record employment creation. The last report by the Labor Department revealed the creation of 199,000 new jobs in October, with the unemployment rate down to 3.7 percent, from 3.9 percent in September. Throughout this year 2.4 million jobs have been created, an average monthly of 239,000, better than the monthly average of 183,000 created during the previous decade.
Even more relevant is the fact that this spectacular job creation has been achieved with interest rates at a level that is “the most restrictive in 25 years,” as described by the President of the Federal Reserve Bank of New York John Williams, quoted in The Washington Post 12/03/23.
Therefore, monetary policy closes this year at a crossroads, between the risk of tightening too much, which could cause a recession, or tightening too little, which may feed inflation.
