US unemployment falls to 6.1% - and should keep on falling

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It's been a long time since the jobless rate in the United States was as low as 6.1%.

Indeed, you have to go back to September 2008 to find a month when unemployment was as low as it is today.

That's significant because September 2008 was the month that Lehman Brothers collapsed – the event that pushed the world to the brink of financial meltdown and forced central banks into emergency action to prevent a second Great Depression.

For six years, the Federal Reserve has had its foot to the floor. Interest rates have barely been above zero and trillions of dollars have been created through the quantitative easing process.

So does the creation of 288,000 new non-farm payroll jobs in June and an unemployment rate of 6.1% mean that we can expect a change in the Fed's policy stance? Probably not for now, although a change in the rhetoric is perhaps not that far off.

Janet Yellen, the Fed's chairman, seems relaxed enough with the way things are. She has expressed a willingness to leave policy on hold, with a gradual tapering away of the asset-purchase programme and no increase in interest rates until there is either a fall in the unemployment rate below 6% or there is an obvious acceleration in wage growth.

After describing signs of growing inflationary pressure as "noise", Yellen will no doubt be comforted by the latest data from the Department for Labor in Washington showing wages were up 2% in the year to June, slightly down on the 2.1% increase recorded in May.

That, though, is a bit misleading since the fall in the annual rate of earnings growth has more to do with what was happening last year than what is happening this. A bounceback in wage growth is highly likely in July.

With every sign that the US economy has recovered strongly from its weather-related contraction in the first quarter of 2014, unemployment looks set to carry on falling. The Fed thinks the level of unemployment consistent with stable inflation is between 5.2% and 5.5%, not much lower than the current jobless rate. Once unemployment dips below 6%, Wall Street is going to get jumpy about inflation, whatever the Fed might say.

Powered by Guardian.co.ukThis article was written by Larry Elliott, for theguardian.com on Thursday 3rd July 2014 14.32 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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