US economic data and Federal Reserve policy

US economic data and Federal Reserve policy

US economic data has created uncertainty in the market regarding the future policies of the Federal Reserve. While on one hand the employment data has pointed towards the strengthening of the economy, on the other hand the Federal Reserve has increased the possibility of further increase in interest rates.

Let us tell you that the American labour market remains strong and the currently released employment data has performed better than everyone’s expectations. 

This performance has seen a decline in the unemployment rate as well as an increase in labour participation. This indicates that the American economy remains strong and the recession fears have also reduced.

The data “will raise concerns at an edgy Fed that the labor market might be reaccelerating after the election in ways that could lead to renewed tightening in labor market conditions,” Krishna Guha, vice chairman of Evercore ISI, wrote in a note.

According to the information, due to this strong employment data, the pressure on the Federal Reserve to increase interest rates has increased. Controlling inflation is an important goal of the Federal Reserve.With this, let us tell you that analysts believe that the Federal Reserve may increase interest rates one or two more times in the coming few months.

Due to this estimate, a situation of uncertainty has been created in the market.

The dollar becomes stronger due to increase in interest rates and due to this, pressure on other currencies increases, which also affects global trade. Borrowing becomes expensive for companies due to increase in interest rates, due to which investment and economic growth can also slow down.

Despite the strong employment data, inflation remains a concern for the Federal Reserve. Even at present, inflation is above the Federal Reserve’s target of 2% and that is why the Federal Reserve is trying to control it by increasing interest rates.