Resilient US Economy Bolsters Case for Possible Future Interest Rate Hikes

In a recent statement by European Central Bank (ECB) policymaker Peter Kazimir, it was suggested that the recent rate hike by the ECB was likely the last, although confirmation will only be possible after reviewing data available in the coming months. Kazimir emphasized the need for concrete data and numbers from December and March meetings to convince policymakers that interest rates have reached their peak. This statement comes amid concerns of a slowing global economy and the impact of trade tensions. Meanwhile, in the United States, the labor market appears to remain tight at the end of the third quarter.

Although initial claims for unemployment benefits saw a modest increase, indicating some challenges faced by the labor market, layoffs declined in September. Additionally, the trade deficit in August shrank to its narrowest point in almost three years, with exports of capital goods reaching a record high. These positive indicators suggest that the US economy has shown resilience despite the interest rate increases implemented by the Federal Reserve.

Consequently, there is a possibility of further rate hikes in the future. The resilience of the US economy raises concerns for Fed officials, as the continued strengthening of demand could jeopardize efforts to bring down inflation. Experts argue that the progress made in reining in inflation may be at risk if the economy continues to strengthen. Furthermore, there are ongoing difficulties for employers in finding labor following the aftermath of the COVID-19 pandemic. The Institute for Supply Management reported that services businesses still view the labor market as highly competitive, with some struggling to fill positions.

Although the labor market remains tight, signs of cooling are starting to emerge. Job openings increased in August, but the pace of job growth may be slowing. Additionally, companies announced fewer job cuts in September compared to the previous month, although the figure is higher than the same period last year. This data suggests that the labor market could be gradually cooling, which provides further support for the possibility of the Federal Reserve keeping interest rates higher for a longer period. In terms of trade, the US trade deficit contracted in August.

A decrease in imports could indicate weaker consumer spending, potentially influenced by higher borrowing costs. However, exports of goods and services experienced growth, with capital goods reaching a record high. The services surplus was also the highest since March 2018. These positive export figures highlight the resilience of the US economy amid trade tensions. As investors eagerly await the release of the nonfarm payrolls report this week, the focus remains on the key economic indicators discussed above. The data released thus far provides insights into the current state of the labor market, trade activity, and the potential for further interest rate hikes.