In the United States, the supplement to unemployment benefits will be discontinued next month. Thanks to that support, millions of Americans who were laid off due to the corona pandemic kept more or less the same income. The federal government supplemented the unemployment benefit by $600 a week, which was more than the regular benefit.
That support prompted many Americans to stay home and not return to their old workers or look for another job. As a result, many American companies complained in recent months that vacancies could not be filled. Simply because no one responded. That is one reason why the number of new jobs over the past few months has been relatively low.
Change calculation
With the impending discontinuation of the supplement to the benefit, things are likely to change considerably in the coming months. Many Americans see the calculation - in which their benefit is higher than the wage they earned before corona - turning into a (considerable) financial loss. There is a good chance that this will cause them to look for a job. Especially now that the ban on evictions in the event of rent or mortgage arrears has been relaxed and will probably expire completely in some time.
I therefore take into account that the number of new jobs per month will be considerable in the coming months. If that number becomes close to 500.000 per month, unemployment in the United States could fall significantly in the spring of 2022. Perhaps to the point where the employment condition of the US central bank Fed (to prepare to increase the official interest rate) can be met.
Conviction is eroding
The second condition for actually considering an interest rate increase concerns inflation. This is quite high in the United States, more than 5%, but the Fed believes that this increase is temporary and will decrease from the end of this year. However, the belief that this is happening is slowly eroding within the interest rate committee.
More and more members are seeing a shift in their assessment of how temporary high inflation is. For example, James Bullard said this week that he still expects high inflation to drop somewhat, but not as much and not as quickly as some of his colleagues think. I thought that was an important comment because it came from Bullard; certainly not a monetary hawk.
Pretty hawks
If Bullard is right, the Fed's second condition will also be met in the first months of 2022. In addition, the annual musical chairs in the interest rate committee will take place on January 1. At the beginning of each year, the four votes held by regional central bank governors move from one group of regional monetary chiefs to another. This year this means that three 'doves' hand over their voting rights to three decent 'hawks'.
If they are confronted with pre-corona-like unemployment and inflation that is far from returning to normal levels, they will argue for at least a different voice, if not a different policy at the Fed.
Uncertainty about Fed policy
I don't see the central bank raising interest rates much next year, at most twice, each time by a quarter. But what is more important for the financial markets is the chance of another more 'hawkish' sound from the Fed in the coming months. This could lead to uncertainty about the 2022 policy, especially from the turn of the year onwards. In the sense that the chance of interest rate increases can be estimated as considerably higher. It should not be surprising if this leads to more volatility in share prices, but also puts upward pressure on long-term interest rates.
Before that happens, the so-called 'Tapering(reducing bond buying) is to be expected. After all, that is the first thing the Fed adjusts when economic conditions change. I predict that before the end of this year, when the Fed has several months of actual inflation data behind it. This shows that the hope that the entire increase in prices since the beginning of this year is a temporary affair has been definitively dashed.