SINGAPORE (June 14): With disappointing US job growth numbers for May and growing concerns over “Brexit”, the possibility of a June rate hike by the US Fed has eased.

However, from the perspective of associate professor Lee Boon Keng from the Nanyang Business School, such a decision is “fundamentally flawed” on several levels.

Lee acknowledges that the lower-than-expected job growth numbers have to be taken into proper context. While numbers for May were indeed a surprise, it was on the back of rather steady job market which has been on a monthly average of 170,000, which is above the Fed’s aim of 100,000.

Unemployment, down a mere 0.3 percentage points, stood at 4.7%. On the other hand, American workers are enjoying higher salaries, with wages up 2.5% y-o-y.

“More importantly, weekly jobless claims, a leading indicator, remain at levels low enough to indicate that labour market is tight and wages will only edge higher,” states Lee.

Lee also debunks claims of the absence of inflation. He points out that core CPI inflation has been above the Fed’s own 2% target for the six months to May, which is taking place even with oil prices coming down.

In addition, inflation can be seen happening via the ISM prices index, which measures prices businesses pay for goods and services. For one, ISM prices paid by manufacturers are at their highest since June 2011, when oil was at US$100 (S$136), and not US$50 now.

Lee also notes that US real GDP growth has reached 2.4% for the past two years, which is higher than the Fed’s long term projection of 2%. “When the market says growth is anaemic, it is in comparison to pre-Lehman crisis years where it was clearly unsustainable. That is why we got into a crisis,” he states.

Lastly, the US economy is not going to be the next Japan, which therefore gives “absolutely no reason” for interest rates to remain so low for so long, states Lee.

“There is no perfect moment to wean the market, especially emerging markets, off the opioid of cheap liquidity. The notion that wealth creation through cheap credit will drive general economic good is a flawed argument. The more likely outcome is widening income divide that creates social instability that could result in isolationism. The Fed is simply wrong to delay normalisation any longer,” he adds.