Aurelia Butler

Economists warn the strongest period of job creation in recent history cannot be sustained for much longer, as the US central bank is increasingly emboldened to take drastic action to cool the economy and root out high inflation. The world’s largest economy added another 372,000 jobs in June, outpacing economists’ expectations by more than 100,000 and underscoring the resilience of the US recovery from the depths of the coronavirus pandemic. But with the Federal Reserve readying the most forceful campaign to tighten monetary policy since the 1980s — and inclined to be even more aggressive if warranted by the data — those gains are likely to slow significantly.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

“You can’t add 372,000 jobs per month forever, because you will be tightening the labour force to extremes,” said Eric Winograd, director of developed market economic research for AllianceBernstein. He reckons a more “sustainable” pace is an average 100,000 positions a month.“Below that and the labour force is weakening. Above that, it is tightening,” he said.For most of the pandemic recovery, worker shortages have been the biggest “binding constraint” on the labour market — according to Stephen Stanley, chief economist at Amherst Pierpont — spawning one of the tightest job markets in history. While he expects these dynamics to continue weighing on employment growth, the Fed’s actions to curtail labour demand will soon also begin to take effect.“There’s good news and bad news in every strong activity number now,” said Andrew Hollenhorst, chief US economist at Citigroup.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

“The good news is that you’re further away from recession . . . but the bad news is that there’s more momentum in the economy and more inflationary pressure in the economy, and it may be that much harder for the Fed to slow things down.”Fed officials have already sharpened their rhetoric about the lengths they are willing to go to ensure inflation does not become entrenched — something they now view as a “significant risk” to the US economy, according to minutes from their June policy meeting.Consensus is building among top policymakers for a second consecutive 0.75 percentage point interest rate increase at the end of the month, following the first since 1994 in June. That would lift the target range of the federal funds rate to 2.25 per cent to 2.50 per cent. By year-end, officials are aiming to lift the policy rate to a level that modestly restrains the economy — estimated around 3.5 per cent. The extent to which the labour market will be harmed as a result is subject to considerable debate. Policymakers are now acknowledging that some economic pain may be necessary and might be less damaging than a situation in which inflation persists at elevated levels for much longer.

Despite these concessions, many officials still maintain that job losses need not be excessive given the historic tightness of the labour market and the near-record number of job openings, which may mean that employers opt to cut back on vacancies as opposed to laying off their staff. Most officials expect the unemployment rate to rise to 4.1 per cent in 2024 — a forecast many economists still view as “wishful thinking”.“The question of ‘will there be a recession’ is almost irrelevant now,” said Sonal Desai, chief investment officer for fixed income at Franklin Templeton. “The reality is we’re going to need a slowdown. We need to see wage pressures come down. We need to see some of the froth in the labour market come off.”Additional reporting by Kate Duguid in New York More

The global economy is going through an uncertain time and concerns around growth and inflation persist, but the central bank believes that there could be some respite from rising prices in the coming months, Das told an economic forum in New Delhi.”Our current assessment is that inflation may ease gradually in the second half” of the fiscal year to March, given a favourable supply outlook and “high frequency indicators pointing to resilience of the recovery” during the three months to June, he said.Retail inflation eased marginally in May, after touching an eight-year high of 7.79% in April, but remained above the central bank’s tolerance band of 2% to 6% for a fifth month.The Reserve Bank of India raised its inflation projection for this fiscal year to 6.7% from 5.7% earlier. Das said it will likely remain above the bank’ upper tolerance band in the first three quarters of the financial year.The governor also highlighted the need for enhanced policy coordination and dialogue among countries at a time when global factors play a key role in domestic inflation dynamics.The bank’s raised rates by 50 basis points in June after a 40-bp increase in May, to prevent growing inflationary pressure from becoming broad-based. Further hikes are likely in coming months, economists predict. More

A Treasury spokesperson said that since Hungary lowered its corporate tax rate to 9% – less than half the 21% U.S. rate – the tax treaty unilaterally benefits Hungary.”The benefits are no longer reciprocal – with a significant loss of potential revenues to the United States and little in return for U.S. business and investment in Hungary.” The timing of the termination following years of U.S. concerns about the treaty suggests that Treasury is using it to try to pressure Hungarian Prime Minister Viktor Orban to agree to implement the 15% global minimum tax agreed by nearly 140 countries.Affirming the Hungarian government’s position, Foreign Minister Peter Szijjarto said that the global minimum tax would ruin Europe’s competitiveness and endanger jobs in Hungary.”Based on all this – no matter how hard the pressure is on us – we obviously do not support the introduction of the global minimum tax in Europe,” he said in a Facebook (NASDAQ:META) post on Saturday. “And we continue our professional consultations on tax issues with our Republican friends.”Termination of the treaty is expected to be completed in six months after the U.S. Treasury sends formal notification to Hungarian authorities.”Hungary made the U.S. government’s longstanding concerns with the 1979 tax treaty worse by blocking the EU Directive to implement a global minimum tax,” the Treasury spokesperson said. “If Hungary implemented a global minimum tax, this treaty would be less one-sided. Refusing to do so could exacerbate Hungary’s status as a treaty-shopping jurisdiction, further disadvantaging the United States.” More

To spur consumption, some local governments have issued consumption vouchers, but those steps remain inadequate due to a serious decline in fiscal revenue at all levels, Lou Jiwei told the Caixin Summer Summit in Beijing. China has unveiled a raft of economic support measures in recent weeks, but analysts say its official 2022 economic growth target of around 5.5% will be hard to achieve. This year, much of the support for the world’s second-biggest economy has come from fiscal stimulus to counter the impact from COVID-19. The cabinet has told local governments to ensure 3.45 trillion yuan ($515 billion) in special bond issuance for infrastructure – part of the 2022 special bond quota of 3.65 trillion yuan – is completed by the end of June. China will front-load some planned 2023 bond issuance in the fourth quarter of this year, with the new quota likely bigger than 1.46 trillion yuan for 2022, sources have told Reuters.There is still some room for the central government to disburse funds, said Lou, who is now at a top political advisory body. “When necessary, we can increase the central and local budget deficits,” he said.($1 = 6.6945 Chinese yuan renminbi) More