Among the economic news of the week is a report that wages in the United States are accelerating. Inflation in Europe eases for the first time in over a year. The European Union extends aid to Egypt.
Wall Street mixed after report shows wages for U.S. workers are accelerating
Earlier today, the US Department of Labor reported strong wage growth in August. Average hourly earnings for non-supervisory workers climbed 0.3% from a month earlier. This is the fastest pace of wage growth since mid-2009. That may be good news for workers, but it also suggests that the Fed might need to get hawkish.
The strong headline number was driven by a strong economy and a strong health care sector. However, the report also showed that the labor market is still tight. The unemployment rate stayed below 4%. That may give the Fed some reassurance.
Meanwhile, the two-year Treasury note yield jumped to the highest level since the pandemic. The benchmark 10-year yield has also risen in recent days.
Federal Reserve prepares to push the economy into recession
Despite the Federal Reserve’s announcement that it is reversing its monetary stimulus, the economy continues to struggle. The US economy is on the road to recession.
The Federal Reserve’s goal is to control inflation without putting the economy into a recession. It does this through a number of means. One of the biggest factors affecting the economy in 2023 is inflation.
The Consumer Price Index has hit a new 40-year high. The inflation rate has climbed to 7.7%. This is still higher than the Fed’s long-term goal of 2%. The Fed has a plan to combat inflation, but how will it affect the economy?
The Fed has also announced plans to shrink its balance sheet. It has already cut its holdings in bonds by about $95 billion a month. It’s a relatively small amount, but the Fed has an enormous asset base.
Inflation in Europe eases for the first time in more than a year
Despite a mild winter, the European Union economy suffered from slowing or declining growth. Amid the worries, policy makers are putting the pedal to the metal in an attempt to control prices.
The European Central Bank will likely tame inflation using a combination of interest rate hikes and a series of rate cuts. Its head, Christine Lagarde, recently said that the ECB does not believe inflation is peaking.
A key factor behind inflation is energy prices. Fortunately, energy prices have slowed over the past few months, reducing the annual rate of inflation. But prices of food and drink continue to rise.
A core inflation measure, which excludes volatile energy prices, showed a small improvement in October. The ECB is expected to make a bigger leap in its estimates when it meets next month.
Inflation in Germany slips back slightly to 10% in November
Despite the gloomy economic outlook, the German economy actually grew in the third quarter of 2014, according to the latest GDP data. The country remains heavily dependent on Russian natural gas. However, the European Union has a new gas supply deal with Russia which will reduce pressure on prices. Inflation in Germany hasn’t budged much, though.
Aside from the obvious – a price cut on energy products – the German government has stepped up its game. It has passed three large-scale relief packages totaling 98 billion euros. Among them, a new “protective umbrella” for natural gas and electricity supplies. It also approved draft laws to cap the price of electricity.
European Union extends aid package to Egypt
Despite the recent political turmoil, the European Union is set to extend its aid package to Egypt by one year. EU foreign policy chief Catherine Ashton will join the EU-Egypt task force to foster closer economic ties. The EU-Egypt Association Agreement has been in force since 2004. It provides a framework for economic and political cooperation between the two countries.
The European Union is giving Egypt a five-billion euro aid package for the socio-economic development of the country. It will help boost the country’s competitiveness and boost the economy through investments in key sectors. It will also improve access to the market for Egyptian businesses and citizens. The agreement will also help to strengthen the role of civil society and citizen rights.