As anticipated by many, last week the US central bank increased again the federal funds interest rate by another quarter percentage point, to a range of 5 to 5.25 percent. This is the tenth consecutive increase in thirteen months, to the highest point reached since 2007.
The decision on interest rates came before the Labor Department announced, two days later, the employment figures for last April, which confirmed the persistence of the strength in the labor market and therefore, justified the interest rate increase.
By contrast the creation of 253,000 new jobs in April, despite recent difficulties among some regional banks, high interest rates, high inflation, and slow growth, was underestimated once again by many forecasters. The unemployment rate decreased to 3.4 percent, the lowest in more than 50 years, while wages increased 4.4 percent from a year earlier, still under the inflation rate. Participation in the labor market among workers between 25 to 54 years old was 83.3 percent, the highest since 2008, while the rate of participation among women of the same age was at a record 77.5 percent.
One of the main questions raised by this perplexing strength in the labor market is if the central bank will have to tighten even more to bring down inflation to the 2 percent target. The next jobs report will be issued before the next central bank meeting, scheduled for 13-14 June.
