Weekly Report

The recent FOMC provided a slightly more hawkish statement by acknowledging the progress in the US economy, labor markets and inflation. Yet it was the adjustment to the statement on the labor market which captured the market’s attention. The FOMC removed the reference to the unemployment rate being “elevated”, yet emphasized that risk to labor markets was balanced. The US indicates the loss of labor market slack, however real wage growth has not appeared. With average

employed workers wages stagnating, deep-rooted inflation pressure are absent and the sense of urgency for Fed action is lacking. Markets have been focused on the granularity of labor markets (a similar to the situation is evolving in the UK). The emphasis on slack suggests that the FOMC was focused on a broader range of indicators outside the unemployment rate with the 6.5% threshold being breached months ago.