Unexpected US jobs boom means interest rates 'pivot' likely to be delayed: James Eades

Contrary to popular belief that the Federal Reserve will, at any time now, start to ‘pivot’ and begin cutting interest rates, it looks as if the unexpected job data could have put a spanner in the works for optimistic economists hoping it might provide further reasoning for rate cuts and more sustainable market conditions.

The figures look to have shed some light on what is happening under the surface of the economy, with unemployment levels at 53-year lows and firms continuing to hire.

However, such a tight and robust labour market, despite aggressive cuts from the Fed, suggests work is still to be done by the central bank to break the market enough to encourage an economic slowdown.

This more pessimistic, but arguably more realistic view, was backed by the Federal Reserve’s Jay Powell, who, following the job market data, warned the US Central Bank might have to raise interest rates higher than expected as it may take a “significant period of time” to tame inflation given the stronger labour market data.

Therefore, while there may be light at the end of the tunnel, the US may still have a way to go in controlling inflation and stabilising the economy.

Deputy Governor of the Bank of England for Financial Stability, Jon Cunliffe, gave a speech on February 7, providing updates about the plans for a Central Bank Digital Currency (CBDC) as a way to modernise the payment system and provide more efficient and secure financial services to consumers.

Familiar cryptocurrency names, such as Bitcoin and Ethereum, use complex systems to secure transactions and control the creation of new units, but are not regulated by a central authority and over recent months have made headlines for a wide range of problems.

However, unlike a typical cryptocurrency, the Bank of England’s digital currency will be centrally backed, controlled and issued by the bank and not private markets, ensuring that digital currency security and robustness remains at the heart of UK financial systems.

The interest in digital currency follows an overall long-term decline in the use of physical cash, accelerated by the pandemic. The proposition would likely mean that the currency would sit in wallets of smartphones and other smart devices which could be used like we use notes and coins.

While the idea could improve the use of monetary policy through the direct control of money in circulation, it could also, if not implemented correctly, increase cyber security risks and financial fraud within the UK financial system.

Despite the currency being in early-stage development, many investors and digital currency enthusiasts are waiting in anticipation to see its progress.

James Eades is a member of the Investment Research Team at Redmayne Bentley