Both theory and past practice suggest that higher interest rates weigh on investment and consumption, crimping companies’ profit and forcing them to reduce hiring or lay off staff.
It could also be that higher interest rates weigh on prices by pushing up borrowing costs and weakening financial markets, without requiring widespread layoffs.
But economic forecasters have wrongly anticipated layoffs and higher unemployment for much of the past year.
Until disinflation becomes less immaculate, the central bank has the unholy problem of choosing between lessons from history and those of the last 12 months.
The U.S. unemployment rate dipped to 3.6% in June, the BLS announced on July 7.
Persons:
Jerome Powell, Donald Trump, Joe Biden, Powell, There’s, Ben Winck, Francesco Guerrera, Peter Thal Larsen, Sharon Lam, Streisand Neto
Organizations:
Reuters, Federal Reserve, Wall, U.S, Fed, UBS –, Bank of International, Workers, United, Refinitiv, Consumer, of Labor Statistics, BLS, Thomson
Locations:
U.S, United States, payrolls, Washington, London