(MENAFN- Daily Forex) One argument used against the Federal Reserve's policy of gradually tightening monetary policy by increasing interest rates was that higher borrowing costs could dissuade US employers from taking on new staff. In normal terms, this argument has some legs, but in the wake of the Global Financial Crisis, interest rates had hit an historic low of 0.25% and are even now at only at 1.25% (band 1 1.25%), so it can be argued that the cost of borrowing is far from excessive. The long-term average figure for US interest is 5.76% (1971-2017).
The fact that US job growth came in stronger than expected in November will make the prospects of a further rate hike this month more likely. The US economy created 228000 jobs last month, beating projections of a 200000 rise. US unemployment remained steady at 4.1%, below the 5% figure that many economists regard as 'full employment. The 'official figure for unemployment is at the lowest level recorded since 2000.
US wages rose by 2.5% year-on-year whilst the official inflation figure was 2% over the same period, meaning that workers are marginally better off than they were a year ago.
Job creation was strong in the health care (30000), manufacturing (31000) and service sectors (retail created 18700 jobs), suggesting a broad base and pointing to the strength of the US economy which is the world's largest. Whilst the rate of job creation has dipped this year, it remains above the level needed to cope with new entrants to the job market and probably reflects the fact of a sustained recovery. From a standard economic viewpoint, the relatively limited employee pool should lead to more competition between employers for staff, leading to higher wages being offered.
The Federal Reserve's Open Markets Committee, which sets interest rates, is meeting this week.
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