New Zealand’s unemployment rate surprised economists when it rose from 6% to 6.8% for the June quarter. The comment from economists is that the market is very volatile and predictions are becoming harder – most forecasted a rise to 6.4%. This led to investors exiting from holding NZ$’s.
However across the pacific the US economy’s labour data is much worse – US unemployment figures are now at 9.5%. The rebound in the economy is not as strong as predicted and Americans are starting to pay off debt with such low rate – Fed rate 0-0.25%. The expansionary policy of the Fed Reserve is starting to run dry – Like when an individual is besieged by many attackers while holding limited ammunition, each shot is used sparingly. Unfortunately for the US they are now running out of ammunition (lower interest rates) to stimulte growth and we could see a classic liquidity trap emerge. They now run the risk of deflation – there was a smilar case in Japan in the 1990’s. For those doing the A2 Economics course this is in Unit 5 of the sylabus.