Unemployment rose in the US in August for the first time in four years. Bad news for the economy, which could stall in the second half of this year. This could serve as a warning to the Federal reserve to raise interest rates. In spite of 4,000 more declared cuts from payrolls, the percentage of unemployed remains the same as six months ago, at 4.6 percent. This takes into account variations in those actively working, as almost 600,000 left the workforce.
But at the root of the problem is the subprime mortgage turmoil. They were sold to people with poor credit histories who had a greater chance of defaulting on their loans. Further growth in subprime lending may have dangers for the housing market in the US with repercussions in Europe. And this is the clearest sign yet that the wider economy has suffered from the subprime crisis.
The Federal reserve is continuing to monitor the crisis, and says it will decide whether to cut interest rates, at its policy meeting on 18th September. US economists say housing slumps have almost always been followed by a recession. And this risk can only be averted by interest rate cuts.
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