EPS 120 | Policymakers face a balancing act as unemployment rises

Investors have been heartened by reports of softer economic conditions, an easing labour market and slowing wage growth in both New Zealand and the US. These are necessary developments for inflation to moderate and interest rates to stop rising. However, the outlook is finely balanced. When unemployment starts rising it tends to keep rising, and even modest increases have historically meant a downturn becomes hard to avoid. We want conditions to weaken, but not too much. So far, so good, but this can be a very difficult needle to thread.