Global Data Watch

Research evidence excerpt

Global Data Watch

oth price effects and strong volumes. Record prof-

be a catalyst for an early Fed hike and remains an upside risk itability in the tech complex is also creating fiscal space, rais-

scenario despite the latest job report. However, our baseline ing the odds that policy can shift to provide more support to

scenario sees the pressure associated with a labor supply con- domestic activity.

straint pushing the Fed towards tightening.

September ECB hike becomes a subject to

Although the negative supply signal from the large 0.3%pt debate

drop in the June participation rate should be viewed cautious-

Lower oil prices are easing near-term inflation and rate hikely, this year’s alignment of a modest pickup in job growth

pressures across the globe. But ECB President Lagarde’s Sin-with a falling unemployment rate highlights the central sup-

tra message was consistent with another rate hike this monthply-side constraint facing the US and other developed market

even as this week’s flash HICP surprised on the downside. Ineconomies (Figure 3). In contrast to the SEP projection that

her speech, Lagarde argued that the ECB has moved back to athe unemployment rate will remain stable at 4.3%, we project

more normal policy setting, where “measured” changes injob growth to lower the rate to 4% by early next year. This

interest rates are the primary policy tool. This “return towould be consistent with a roughly 60bp higher policy rate in

basics” comes from both directions: the ECB does not have toa standard Taylor rule.

hike “forcefully” as in 2022, but it also does not have to deal

Figure 3: US payrolls and unemployment rate with the acute stresses seen during the sovereign crisis or

6m chg, thous. 6m chg, %-pt GFC. This argument is linked to her view that the Euro area