Economists expect the Federal Reserve to speed up reducing its stimulus program this month, allowing it to raise interest rates sooner next year if necessary, given the sharp drop in the US unemployment rate, according to Financial Times.
Winding Down Massive Stimulus Program
According to the AFP, the United States added just 210,000 jobs last month, which is less than half of what analysts expected and adds to President Joe Biden’s woes. President Biden and his massive Build Back Better spending bill have relied on a robust economic recovery to gain public support. Still, Friday’s data released by the Bureau of Labor Statistics paints a complicated picture of American workers’ prospects as businesses recover from the COVID-19 pandemic.
According to The Guardian, fears of rising inflation have prompted the US Federal Reserve to begin winding down the massive stimulus program it put in place at the beginning of the COVID-19 pandemic. Over the past few months, Federal Reserve officials have been debating whether and when to end the stimulus programs that were put in place to counteract the effects of the pandemic.
In March 2020, the Federal Reserve cut interest rates near zero. It began buying $120 billion in Treasury and mortgage-backed securities each month to prop up the US economy, which had been hit hard by the pandemic. The United States appears to have avoided an economic disaster due to the initiative.
Lower Than Anticipated Rate
Labor Department data showed a lower-than-anticipated jobless rate of 4.2 percent. At the same time, the country has added 550,000 jobs per month on average this year despite November’s underperformance, as per Forbes. However, retail and leisure, and hospitality saw underwhelming hiring. At the same time, businesses are once again bracing for the spread of the Omicron variant of COVID-19, which could hamper the recovery, as the Delta wave did this summer.
According to analysts, a rise in inflation in the world’s largest economy bolstered their expectations for the Federal Reserve, which is expected to reduce stimulus measures further when it meets later this month, as per RTHK. If that happens, it will be able to use its most potent weapon against price increases, a rate rise from zero, much more quickly than expected.
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