August 16, 2022

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The Fed's main concern - E24

The Fed’s main concern – E24

Chief Economist Harald Magnus Andreessen is watching the US labor market closely during the day and believes there are clear signs of weakness.

Involved: Harald Magnus Andresen, chief economist at Sparebank 1 Markets.
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– What has not been true so far is that unemployment is quite flat at 3.6 per cent. We know that in recessions unemployment has risen, says Harald Magnus Andresen, chief economist at Sparebank 1 Markets.

Friday comes the labor market report from the US statistical authorities, which is often cited as the most important key number for the month.

Analysts consensus up front points to an unchanged unemployment rate of 3.6 percent, and an increase in the number of non-farm payrolls (NFPs) of 250,000.

Andreessen believes that the unemployment rate remains unchanged, and that he is putting pressure on the US central bank, the Federal Reserve (Fed).

– He says the reason there is no increase in unemployment is bad news is that these numbers will have to change a lot before the Fed can do its job of lowering inflation over time.

The chief economist notes that rising unemployment will be a sign that the central bank is able to slow the economy, and thus also inflation, which is currently soaring.

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Very high wage growth

The wage index showed last week Labor Cost Index That employee compensation costs in the United States rose 1.3 percent from the first quarter to the second quarter. A 1.2 percent increase was expected, according to Trading Economics.

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The problem with the Fed is that wage growth will be too high to achieve inflation over time. We got a wage index last week that wasn’t good at all, says Andreessen, and it shows wage growth in the private sector is at a level that is impossible to combine with an inflation target of 2 percent.

It is believed that the Fed is satisfied. But the problem is that the Fed cannot be satisfied until it sees wage growth drop dramatically. It requires a weakening of the labor market, which is what we call stagnation.

Andreessen says a weak labor market means you have to reduce the demand for goods and services. He believes that this will exceed corporate profits and margins, which may contribute to discouraging wage growth in the future.

Only then did the Fed get what it wanted when it came to controlling inflation. I think there are a lot of people in the market who don’t understand what this is all about, we have a totally unbalanced job market. This is the Fed’s most important concern, and it is far more important than commodity prices, he says.

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Bad news, good news.

Stein Braun, chief economist at Arctic Secrities, noted rising wage growth in the United States.

Stein Braun, chief economist at Arctic Securities.

Inflation and wage growth still indicate that the Federal Reserve is in a standstill. Meanwhile, there are two sets of monthly numbers ahead of the Federal Reserve’s September meeting. A lot can happen to inflation before that time. I think inflation will come down before the September meeting, in part due to the lower price of gasoline.

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The key interest rate is the central bank’s weapon to reduce inflation in the country, and it is a major area of ​​focus these days. At the same time, the pace of the US economy has begun to slow significantly, says Brown, who is excited about how the Federal Reserve is focusing on developments in inflation and the economy.

– It’s “bad news, good news” for the market. In the first half of the year, the Fed could unilaterally focus on compensating for losses to cut inflation, as the economy has been doing well. If we get clear signs of a significantly weaker development, the Fed may begin to focus more on the real economy going forward, which could point to smaller rate increases. I think the market will take that positively.