During last Tuesday’s Senate Banking Committee testimony on Capitol Hill, Federal Reserve chairman Jerome Powell reiterated that the US central bank believes gradually raising interest rates is the “best way forward”. He added that the Fed is “aware that raising interest rates too slowly may lead to high inflation or financial market excesses”.
The Fed chairman also signalled an upbeat assessment of the state of the US economy. He said the economy has grown at a solid pace so far this year and noted the latest data suggests economic growth in the second quarter was “considerably stronger” than in the first quarter.
Powell also described the recent inflation data as “encouraging”, with consumer price inflation a little above the central bank’s two per cent target. He expects that, with appropriate monetary policy, the job market will remain strong and inflation will stay near two per cent over the next several years.
Raising rates too rapidly, the Fed chairman added, could weaken the economy and result in disinflation counter to their objective. Powell said the Fed will continue to weigh a wide range of information and stressed that the Fed’s policy decisions will continue depend on the economic outlook. The Fed has raised rates twice this year to the current range of 1.75 to two per cent, and has signalled two more rate hikes before the end of the year.
Meanwhile, the European Automobile Manufacturers’ Association reported that Europe’s new car registrations rose at a faster pace in June. Passenger car market grew 5.2 per cent year-over-year in June, well above the 0.8 per cent increase in May. It was the third successive monthly growth. Sales totalled 1,569,067 units in June, up from 1,491,463 units in the corresponding month last year. In volume terms, this result marked the highest June total on record to date.
Among the major markets, France registered the biggest rise by 9.2 per cent, followed by Spain with 8.0 per cent increase. Germany logged a growth of 4.2 per cent, while the UK and Italy both posted declines. During the first half of this year, new passenger car registrations climbed by 2.9 per cent, totalling 8,449,247 units.
Finally, data released by the UK Office for National Statistics (ONS) showed that Britain’s employment level set a fresh record in the three months to May, and unemployment was unchanged, yet pay growth eased to its lowest in six months.
The number of employed was a record high 32.399 million in the March to May period, rising by 137,000 from the previous three months. The employment rate rose to a record 75.7 per cent from 75.6 per cent in the three months to April period. The unemployment rate remained at 4.2 per cent, the lowest since 1975.
Average weekly total earnings grew 2.5 per cent year-on-year in the three months to May, slower than the 2.6 per cent in the previous three months. Despite this, the Bank of England seems to be comfortable with the overall trend as long as the heightened Brexit uncertainty does not persist. A ‘hard Brexit’ would be a “material event” for interest rates, having “big economic consequences” for the UK, the ONS said.
This report was compiled by Bank of Valletta for general information purposes only.