"Participation also moved up from 62.53 per cent to 62.59 per cent, raising the unemployment rate to 4.05 per cent in June from 3.96 per cent in May.
The May Job Openings and Labour Turnover Survey also painted a picture of easing. While the labour market remains somewhat tight, the jobs to unemployed worker ratio is now back to pre-pandemic levels and openings and hires continue to decline on a year-on-year basis, while redundancies rise."
Vas Gkionakis, economist at Aviva Investors, says the US economy has so far been able to weather the impact of higher rates, and to bring inflation down.
He says that while growth continues to be strong, policymakers need to think about the balance of probabilities, “the longer monetary policy is tight, the greater the chance that something breaks in the economy”.
Gkionakis says the imbalance between services and goods inflation is something that is happening in most developed economies, and he feels it likely to mean the Fed will want to see several quarters of positive inflation data before making a decision to cut rates.
He says one of the core problems is that US fiscal deficit is particularly high relative to the current level of unemployment.
Deficits should be low when unemployment is low because tax receipts should be rising while the cost of social provisions such as unemployment benefit is falling.
A higher deficit matters because the prevailing interest rate of the day sets the rate the government will have to pay to borrow the money to fund the deficit rises.
Cutting rates reduces the cost of funding the deficit, if a deficit is high, in normal circumstances unemployment would be high, cutting rates would serve both to reduce the cost of funding the deficit and also to stimulate economic activity, which would reduce the unemployment rate.
But if the rate cuts do stimulate the economy at a time of almost full employment, the risk is that wages would rise and the inflationary spiral restart.
Whether the current level of interest rates in the US is too high is something that has been on the mind of Miller.
Rates being too tight means they are higher than is needed to curb inflation, and sufficiently high that it is restricting the level of economic growth in the economy.
Miller agrees that with economic growth in the US above 2 per cent, it may not seem obvious that interest rates need to be cut, though inflation being between 2-3 per cent implies lower risk that a rate cut could cause inflation to persist.
