Fed raises rates but job creation slows

The Federal Reserve raised interest rates by 25 basis points on 30 June, very much as expected. Ironically, on 2 July, the US Labor Department reported that American companies created 112,000 jobs last month, less than half what economists had expected.

So the US economy might have begun slowing down even before the Fed starts monetary tightening. Some commentators are already asking whether the Fed is behind the curve.

My guess is: it is not. Remember that the federal funds rate, at 1.25 percent, remains below the inflation rate. And excessively loose monetary policy encourages financial speculation and tends to result in misallocation of resources.

Anyway, the combination of news is obviously negative for the stock market, and stocks around the world have reacted accordingly (see my article "Stocks fall as Fed raises rates and jobs data disappoint").