Federal Reserve Faces Pressure for Three More Rate Hikes Amid Strong Labour Market

Nordea analysts Ole Håkon Eek-Nielsen and Jan von Gerich believe that the Federal Reserve will likely deliver three more rate hikes in the coming quarters to bring inflation back to target.

The analysts highlight falling unemployment, constrained labour supply, and rising core PCE and service price inflation as key drivers. They argue that wage pressures and higher goods prices could justify additional policy firming.

Eek-Nielsen and von Gerich state that 'at the end of the day, the interest rate decision will come down to unemployment and inflation.'

The authors point out that if government employment turns around, job growth could easily become more than sufficient to push unemployment lower, especially given the weak growth in the labour supply.