The Japanese and other Asian markets reacted positively to better than expected employment data coming from the US last month. Tokyo’s Nikkei 225, the largest market in the region, expanded by 3.8 percent to reach 13,363.18. Also influencing the Asian markets were promises from the Japanese prime minister that he was introducing tax reductions.
The price of a barrel of oil was sustained above $96 as investors’ fears that the US Federal Reserve would end its economic stimulus program were reduced.
The US Labor Department announced that the United States, which is still the world’s largest economy, added 175,000 jobs to its economy in May, about 10,000 more than had been predicted.
“The relief from U.S. jobs was palpable,” said Mizuho Corporate Bank in a report. It said gains were “gentle enough to avert concerns” that the Fed might be tempted to halt its “quantitative easing.”
William Dudley, president of the Federal Reserve Bank of New York, expressed his view that there should be more aid for US homeowners, emphasizing that the central bank has not yet “run out of ammunition.”
“We cannot be satisfied with the current state of the economy or the outlook for the next few years,”
said Dudley, in a speech at the U.S. Military Academy in West Point, N.Y.
Low Interest Rates
The Federal Reserve Bank has been using many of its traditional methods to help boost the sluggish economy, including maintaining record low interest rates since December 2008 so that both businesses and consumers would feel more confident about borrowing money.
Unfortunately the low interest rates have not yet had the desired effect, and the economy is still lagging in a slump. Since the interest rates cannot go below zero, this tool is no longer an option for the Feds.
This is the reason the Feds began a process called “quantitative easing” in a recently launched program called “Operation Twist.” Quantitative easing is major asset purchasing, whose goal is to bring down long-term interest rates to even lower levels, including mortgages.
Dudley said last Thursday that he believes the economy still has a long journey ahead before it arrives at full recovery, and is convinced that another boost from the Feds may be in order.
Unemployment Too High
Dudley’s forecast was for the US gross domestic product to grow only 2.75% in the coming year, which will not be enough to bring down the unemployment rate and get people back to work.
“I am deeply unhappy with the current forecast of prolonged high unemployment,” he said.