Photo: UPI.com
By Isaac Cohen*
US central bank Chairman Jerome Powell described last week’s rebate in the federal funds interest rate, by more than expected, as “an appropriate recalibration” of the monetary policy stance, to maintain the “strength in the labor market.” With inflation approaching the central bank target of 2 percent, together with vigorous consumer spending and strong economic growth, the attention can be turned toward the labor market.
As recognized by the central bank, the labor market has “cooled considerably.” The monthly average of job creation has gone down to around 100,000 new jobs, from 220,000 in the year before past June, with the unemployment rate increasing from 3.7 percent last year, to 4.2 percent in August. Therefore, as declared by Chairman Powell in a speech last August, the time has come to adjust the policy, to avoid “further cooling in labor market conditions.”
The projections released at the end of last week’s meeting indicate the end of the monetary policy “tightening cycle,” with additional interest rate cuts of 0.5 percent anticipated for this year and a full percentage point reduction for next year. With strong growth, low inflation and low unemployment, the US economy is closer to an equilibrium, with neutral interest rates that do not restrict or stimulate the economy.
*International analyst and consultant, former Director ECLAC Washington. Commentator on economic and financial issues for CNN en Español TV and radio, UNIVISION, TELEMUNDO and other media.
