In the United States, job creation has slowed down somewhat. In June, 'only' 209k jobs were created, while the figures for April and May fell by 77k and 33k respectively, to 217k in April and 306k in May.
Despite this less significant creation in recent months, other indicators show that the labour market remains solid: Hourly wages are up 4.4% over one year, and the number of hours worked is increasing. The unemployment rate fell to 3.6%.
These figures show a still buoyant market, but less overheated than in the past. Nevertheless, the fact that wages continue to rise steadily will not reassure the Federal Reserve.
The Fed will increase critical rates
The normalisation of credit conditions and raising the debt ceiling reduce the risks to the US economy and keep the Fed on the path to higher rates. Two further increases are expected at this stage.
Not surprisingly, the report of the last monetary policy meeting of the US Federal Reserve reaffirms what was already known: the US Central Bank remains very concerned about inflation. It will increase its key interest rates further.
The still very tight labour market (see above) and the resilience of the American consumer still hold the economy afloat and delay the return of inflation to levels compatible with the 2.0% objective defended by the American authorities.
But if key interest rates will still be raised, at least in part, thanks to the Fed’s success in stabilising the financial system: Following the problems that had affected US regional banks towards the end of the Winter, credit conditions had tightened sharply. The market was doing what the Fed was about to do. Restrict credit by making it more expensive and challenging to obtain to calm consumers' enthusiasm. However, the June break enabled the Monetary Policy Committee to keep pace with developments on this front and note that credit conditions have mainly normalised thanks to the Fed’s actions that helped calm the markets.
Also noteworthy was the increase in the US debt ceiling, which helped to remove another risk that had weighed on the US economy in recent months. As a result, the U.S. economy continues to expand at a moderate pace, reassuring the Fed and giving it the flexibility to stay on the bullish path.
While most of these elements were known, they did not fail to impact investors' confidence, many of whom had bet on one (or even several) cuts in US key interest rates before the end of the year. Unless there is an unexpected catastrophe, these declines will not occur. As a result, markets will have to adjust to higher interest rates for extended periods. A scenario of two more rate hikes in July and September is now the most likely.
An increase in the cost of credit may weigh on the American economy in the coming quarters, but the vast assets it has for the future are insignificant.
U.S. assets remain strong across all of the diversified portfolios.