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Next week's economics: May 2 - 6

Next week's new might increase expectations of higher interest rates in the UK, US and eurozone.
Next week's economics: May 2 - 6

The Federal Reserve will raise US interest rates next week, probably by half a percentage point, while also promising more rises and the start of a reversal of quantitative easing.

Figures in the week will show some reasons why it is doing this. On Monday, the ISM survey is likely to show that the manufacturing economy is still doing well but that prices are rising very sharply. And Friday’s employment report will show that the economy is still creating lots of jobs, with the unemployment rate falling to its pre-pandemic low of 3.5 per cent. Partly because of this, wage growth is accelerating: Friday’s figures will show it to be nearly 6 per cent, well above its pre-pandemic levels.

There is, though, a complication here. Wages are falling in real terms. And by another measure, the labour market is not so tight: the proportion of the population in employment will remain well below its pre-pandemic level. One quandary for the Fed is interpreting this: does it means people have genuinely left the labour market (which is potentially inflationary) or does it mean there is hidden unemployment, which would hold down inflation?

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