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US jobs boom raises doubts about rate cuts
Last month, employers in the United States saw a significant surge in job creation, adding over 300,000 jobs, marking the largest increase in nearly a year, amidst the ongoing economic prosperity in the world's largest economy.
According to the Labor Department, the unemployment rate dropped to 3.8%, with sectors like healthcare, construction, and government witnessing growth in employment opportunities.
This robust job growth surpassed economists' expectations, who had anticipated around 200,000 job additions. Analysts noted that these strong figures might postpone potential cuts to US interest rates. Currently, the US central bank's key interest rate stands at its highest level in over two decades, ranging between 5.25% and 5.5%.
Initially, analysts had anticipated the Federal Reserve to initiate rate cuts this year to mitigate a potential economic slowdown caused by high borrowing costs. However, the unexpectedly strong performance of the economy has raised uncertainties regarding the timing of these rate cuts.
In 2022, the Federal Reserve had hiked interest rates significantly to temper the economy and alleviate mounting inflationary pressures. Since then, inflation in the US has moderated, dropping to 3.2% in February, without the anticipated surge in unemployment following the rise in borrowing costs.
Government spending in sectors such as high-tech manufacturing and infrastructure, coupled with an influx of over three million immigrants last year, has bolstered the labour market. This influx may be contributing to wage stability, preventing the job boom from reigniting inflationary pressures.
In March, average hourly wages increased by 4.1% compared to the previous year, aligning closely with expectations and remaining near a three-year low. However, some economists caution that sustained robust job growth could hinder efforts to return inflation to the Federal Reserve's 2% target.
The higher interest rates in the US have exerted pressure on economies worldwide, attracting investors to American markets and diverting capital away from other nations.
UK house prices fall for the first time in over six months
According to the latest report from Halifax, house prices experienced a decline in March, marking the first decrease in over six months across the UK.
The lender reported a 1% drop in prices last month, attributing it to the impact of higher mortgage rates on the affordability of homes for potential buyers. The average house price dipped by approximately £2,900 to £288,430.
Nevertheless, Halifax noted that despite the decline, house prices remained higher than they were a year ago. In March, prices were 0.3% higher compared to the same period last year, although this growth rate had slowed from the 1.6% annual increase observed in February.
During the Covid pandemic, UK interest rates reached historic lows. However, the Bank of England commenced rate hikes towards the end of 2021 in an effort to manage inflation. This upward trend in interest rates consequently affected mortgage rates, making borrowing money for house purchases more costly.
Mortgage rates reached their peak last summer but began to decline as anticipation mounted regarding potential rate cuts by the Bank of England this year. This led to increased activity in the housing market, with February witnessing the highest number of mortgage approvals since September 2022, according to recent Bank of England data.
However, uncertainties surrounding the pace of rate reductions by the Bank of England have halted decreases in mortgage rates, prompting some lenders to raise them once again.
It's important to note that Halifax's house price data is based solely on its own mortgage lending, excluding cash buyers and buy-to-let transactions. Cash buyers constitute approximately a third of housing sales.
Japan raises interest rates for first time in 17 years
Japan's central bank has made a historic move by increasing borrowing costs for the first time in 17 years.
The Bank of Japan (BOJ) raised its key interest rate from -0.1% to a range of 0%-0.1% in response to a surge in wages following a rise in consumer prices.
In 2016, the bank had cut the rate below zero in a bid to stimulate the country's sluggish economy. With this hike, there are now no countries left with negative interest rates.
Negative rates essentially meant that individuals had to pay to deposit money in a bank, serving as an incentive for spending rather than saving.
The BOJ has also abandoned its yield curve control (YCC) policy, which involved purchasing Japanese government bonds to manage interest rates. Although in place since 2016, the YCC policy faced criticism for distorting markets by keeping long-term interest rates artificially low.
Expectations for the BOJ to raise rates had been mounting since Governor Kazuo Ueda assumed office in April of the previous year. Despite a slowdown in the rate of price increases, Japan's core consumer inflation remained at the bank's 2% target in January, prompting the decision to finally hike rates.
Major corporations in the country had started increasing wages for their employees to combat the rising cost of living, with the latest official figures revealing the largest wage hike in over three decades earlier this month.
Previously stagnant wages in Japan, which had remained unchanged since the late 1990s despite slow or negative consumer price growth, have seen a notable uptick. In February, the country's main stock index, the Nikkei 225, reached an all-time closing high, surpassing the previous record set 34 years ago.
Additionally, Japan managed to avoid a technical recession this month after its official economic growth figures were revised, showing a 0.4% increase in gross domestic product (GDP) in the last quarter of 2023 compared to the previous year.
During the pandemic, central banks globally slashed interest rates to mitigate the adverse effects of border closures and lockdowns. Some countries, including Switzerland, Denmark, and the European Central Bank, even introduced negative interest rates.
However, central banks like the US Federal Reserve and the Bank of England have since been aggressively raising interest rates to combat surging prices.
