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As you all know, financial markets are obsessed with the outlook for US interest rates. The timeline for when the Federal Reserve will start the cutting cycle has been moving around a lot this year. The reason is that core inflation is not dropping fast enough, and this is put down to a more robust performance from the US economy.
The US labour is often quoted as a source of this strong performance in the US economy. This is true if we look at the chart below. Total employment as measured by the non-Farm Payrolls Survey (grey line in the chart) has been climbing steadily month by month.
And so, we must ask ourselves: is this growth in employment inflationary? The unemployment rate (the blue line) would say not. It has been rising since the middle of last year. Yes, job growth has been strong but spare capacity in the labour market is increasing. The surprise that is coming through is that population growth (and with it, growth in the labour force) is higher than we thought. Consequently, inflationary pressures in the US labour market look relatively muted and this should put downward pressure on inflation in due coarse. Patience is a virtue
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