What's Next for Interest Rates? An Alarming Scenario on the Table
Unemployment in Norway is falling for the third consecutive month. Economists point out that a cut in interest rates is currently out of the question. More and more often, a scenario of a rate hike as early as March is being discussed.
The labor market shows strength despite high interest rates.
Fot. Andrzej Wójtowicz, Flickr.com (CC BY-SA 2.0)
The latest data from the Norwegian Labour and Welfare Administration (NAV) for February shows a decrease in the number of unemployed by 500 people. The seasonally adjusted unemployment rate stands at 2.1 percent. This is a lower level than Norges Bank expected. According to some economists, this changes the outlook for monetary policy.
The Labor Market Changes Expectations
Nordea Markets' Chief Economist Kjetil Olsen believes that a rate cut is completely out of the question in the longer term. He points to a clear downward trend in unemployment. In January, the number of unemployed fell by 900 people. The month before, the decrease was 1,200 people. The data shows three consecutive months of improvement in the labor market.
Olsen emphasizes that Norges Bank was concerned about rising unemployment with high interest rates. Meanwhile, the labor market remains strong. Inflation was too high, but the economy is not slowing down. According to the economist, the probability of a rate hike is increasing. He estimates the chances of an upward move in March at more than 50 percent.
Olsen emphasizes that Norges Bank was concerned about rising unemployment with high interest rates. Meanwhile, the labor market remains strong. Inflation was too high, but the economy is not slowing down. According to the economist, the probability of a rate hike is increasing. He estimates the chances of an upward move in March at more than 50 percent.
Interest rates remain a key topic for households.Photo: stock.adobe.com/standard license
A More Cautious Bank Assessment
Kyrre Knudsen from SpareBank 1 SR-Bank agrees that the data limits the room for rate cuts. However, he points out that the seasonally adjusted unemployment rate at 2.1 percent remains unchanged. Norges Bank had assumed a level of 2.2 percent. The difference is small.
Knudsen believes that the data only slightly raises the interest rate path. At the same time, he points to other indicators suggesting more slack in the economy. In his view, a rate cut is still possible later in the year. The final decision will depend on the broader macroeconomic picture.
Knudsen believes that the data only slightly raises the interest rate path. At the same time, he points to other indicators suggesting more slack in the economy. In his view, a rate cut is still possible later in the year. The final decision will depend on the broader macroeconomic picture.
The next Norges Bank meeting is scheduled for March. Then, a decision on a possible change in interest rates may be made. Current labor market data increases uncertainty around earlier announcements of monetary policy easing.
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