US worker productivity grew more than expected during the third quarter, which contributed to lowering labor costs and supported estimates that the labor market was not a source of inflationary pressures.
The Bureau of Labor Statistics, affiliated with the US Department of Labor, said on Thursday that the productivity of workers in non-agricultural sectors, which measures the volume of production per hour of work, rose at an annual rate of 3.6 percent during the past quarter, after an upwardly revised increase of 2.1 percent during the second quarter.
Economists polled by Reuters had expected productivity to rise at a rate of 2.8 percent, compared to a growth rate of 1.4 percent according to the previous reading for the second quarter.
Productivity is characterized by volatility on a quarterly basis, while it recorded a growth rate of 2.1 percent, compared to the same period last year.
Economists and policymakers hope that the boom in spending on artificial intelligence will lead to significant productivity gains.
On the other hand, unit labor costs, which measure the cost of labor needed to produce one unit of goods or services, declined at a rate of 0.7 percent during the third quarter, marking their first decline since the second quarter of 2025, after rising at a rate of 1.9 percent during the second quarter, according to an upwardly revised reading.
Economists had expected unit labor costs to rise by 0.6 percent, after an increase of 1.2 percent according to the previous reading. On an annual basis, labor costs rose by 2.4 percent.
This data follows the release of figures last week, which showed a moderate increase in the Employment Cost Index during the third quarter, which is the broadest measure for measuring labor costs.
Policymakers and economists believe that the labor market is not a major source of inflation. Moderation in wage growth also gives the US Federal Reserve more scope to focus on the increasing price pressures resulting from the continuing US-Israeli war with Iran.
Last week, the US Central Bank kept the key overnight interest rate within a range between 3.75 and 4 percent, while acknowledging that inflation “remains high.” Economists expect that the Federal Reserve will raise borrowing costs next December.
The external debt of developing countries jumped to a record level of $9.4 trillion during 2025, an increase of 5.5 percent on an annual basis, in the fastest pace of growth since 2021, amid a strong return to borrowing from private sector creditors, and a recovery in international bond issuances, but with a financing cost that remains high, doubling the pressures on the poorest economies, and limiting their ability to direct resources towards development and investment in human capital.
According to the 2026 International Debt Report issued by the World Bank Group, debt growth over the past year recorded a rate nearly 4 times the average growth recorded during the period between 2022 and 2024, with external debt rising at a faster pace in countries most vulnerable to risks. It increased by 8.1 percent, reaching $1.3 trillion in countries eligible for concessional financing from the International Development Association of the World Bank.
Financing from the private sector was the main driver of this increase, as bond issuances from public institutions and government-backed entities rose by about 35 percent, reaching $251 billion, their highest level in 5 years, with a number of developing countries returning to international bond markets.
Haishan Fu, chief statistician and director of the Development Data Group at the World Bank, said that the return of private creditors to low- and middle-income countries represents a positive development, but these countries are borrowing more and paying higher costs, while in many cases they have fewer resources left to finance long-term development.
She added that responsible debt management gives everyone, including future generations, the opportunity to achieve prosperity.
High borrowing cost
Although access to international finance has improved, the cost of borrowing remains high, especially for low-income countries. The average interest rate paid by countries eligible to borrow from the International Development Association on their new commitments to private sector creditors reached 8.2 percent during 2025, the highest level since 1989, while the interest on new bonds reached 9.4 percent.
The gap between the interest rates these countries pay to official creditors and those they pay to the private sector has widened, from 3.4 percentage points in 2016 to 5.5 percentage points in 2025.
In contrast, the average interest rate on new bonds for countries eligible only for non-concessional loans from the International Bank for Reconstruction and Development was 5.5 percent, down from 5.8 percent the previous year.
The report indicated that many governments issued new bonds to refinance debts that were approaching maturity, in a step that contributed to improving repayment terms without significantly reducing debt balances, often at higher interest rates.
Low- and middle-income countries continued to turn to international bond markets despite the rise in financing costs, as the issuances of more than 10 countries by mid-August 2026 exceeded their total issuances during the entire year of 2025, while other countries returned to these markets.
Debt service burdens
In light of the rise in global interest rates, debt service burdens remained high, as low- and middle-income countries repaid about $1.4 trillion in principal and interest during 2025, an increase of 1.9 percent, marking an annual increase for the fifth year in a row.
Payments to bondholders rose to $363 billion, driven in part by debt buybacks and early repayments financed by new bond issuance.
During the period from 2022 to 2025, developing countries repaid their debts by about $436 billion more than they received in new financing. However, this trend reversed during 2025, as long-term debt flows went from net outflows of $118 billion in 2024 to net inflows of $45 billion.
The report pointed out that exchange rate movements also contributed to increasing debt burdens, as more than a quarter of the $303 billion increase in the value of public and government-guaranteed debt is due to the impact of the decline of the US dollar on the value of debts denominated in other currencies when converted to dollars.
For a number of the largest concessional borrowers, the impact of exchange rate movements exceeded the value of the principal they repaid during 2025, leading to an increase in their recorded debt balances despite their continued repayment of debt service obligations.
Cleveland Federal Reserve Bank President Beth Hammack said Thursday that the US central bank still has more work to do to reduce inflation to its 2 percent target, noting that price pressures are still unacceptably high.
Hammack added, in the text of a speech she prepared to deliver during an event in Zurich, that she expects monetary policy to move towards a restrictive level in order to return inflation to 2 percent within an appropriate period of time.
Although it did not set a date for the next increase in interest rates, it made clear that it prefers to reach this level through smaller, closer increases whenever possible, usually because this approach will be less disruptive to families, companies, and financial markets, according to Reuters.
She said that gradual increases would also reduce the risks of monetary policy falling behind the required level, and prevent an inflationary mentality from taking hold in the economy.
Last week, the Federal Reserve kept key interest rates within a range between 3.75 and 4 percent, despite monetary policy makers acknowledging that inflation is still very high. The bank raised interest rates in September, while financial markets widely expect another increase in December.
Hammack, along with Federal Reserve Governor Lisa Cook, voted against the decision to keep interest rates unchanged last week, preferring to raise them. Hammack had also opposed the decision to fix interest rates in late July.
Hammack believes that monetary policy and broader financial conditions do not yet provide the level of tightening necessary to curb economic activity and inflation, which, according to her position, requires raising short-term borrowing costs.
In her speech, Hammack stressed the importance of the independence of central banks to achieve price stability, adding that “the Federal Reserve has gained credibility” as an institution that bases its decisions on economic evidence and data, and not on political pressure.
The dollar's status as a global reserve currency
Hammack devoted a large part of her speech to the role and importance of the dollar on the global scene, stressing that the American currency still leads the world's reserve currencies by a large margin, thanks to the strength of American institutions and the country's legal system.
She said that the status of the dollar depends on maintaining the basic components that support its strength and provide a solid base for any currency, noting that this includes preserving the independence of the central bank to allow it to carry out its tasks.
She added that she does not expect the dollar to lose its global role, explaining that it is possible that the US currency’s share of global reserves has reached its peak, but it is difficult to imagine imminent major changes in its international role.
It also ruled out that cryptocurrencies pose a threat to the position of the dollar at the present time, noting that the sharp fluctuations in their prices make them less reliable as a store of value compared to the US currency.
“Until these issues are addressed, I remain skeptical that cryptocurrencies will pose a threat to the dollar,” she said.
