about 2 months ago • 2 mins
What’s going on here?
The Federal Reserve (the Fed) might’ve wished upon a star, but its American employment Dream didn’t come true.
What does this mean?
The latest employment data showed that the US filled around 216,000 jobs in December. And while that’s more than expected, the main kicker was the salaries being paid out. Paychecks were just over 4% higher than the same time last year, and while that does mean Americans can keep up with rising prices, it also means companies can keep upping their price tags. That’s a spiral that could keep fanning inflation, so while the Fed hardly has a reputation for partying hard, the central bank is sure nursing a long-lasting headache right now.
Why should I care?
Zooming out: Mathemat-ish.
Central bankers round their numbers even more than shoppers during January sales. Any inflation reading below 2.5% could be deemed “close enough” to the European Central Bank’s (the ECB) 2% target, the point at which interest rate cuts are firmly on the table. But any number above, and central banks will see red – or, at least, the 3% mark. So when December’s 2.9% stat landed on desks this Friday, the ECB will have noticed the uptick from November’s 2.4%. And even though economists expected a slight increase, that data could keep rate cuts off the table for longer.
The bigger picture: Artificial intelligence versus real inflation.
High interest rates might be keeping inflation steady now, but they were near zero for much of the last decade. That means something else had been keeping prices in check beforehand – and that could’ve been technology. Cost-saving tech like cloud computing solutions keep companies’ margins wide, and that means they don’t need to push high costs onto their customers in the form of beefier prices. So give it a few months or years, and artificial intelligence may work magic on firms’ books. If so, that should keep prices stable and shoppers happy.
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