Why the US job market has defied rising interest rates and expectations of high unemployment

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Last year’s spike in inflation, to the highest level in four decades, was painful enough for American households.

, has scarcely budged since March 2022, when the Fed began imposing a series of 11 rate hikes at the fastest pace in decades.

But to quell demand-fueled inflation, the Fed's policies would have needed to crush spending, causing sales to plunge and forcing businesses to cut jobs. Yet inflation has cooled even as Americans as as whole have continued to spend freely on shopping, traveling and entertainment. In a recent study, Mike Konczal, a director at the Roosevelt Institute think tank, found that the prices of nearly three-quarters of goods and services have declined as quantities have increased. This suggested to him that rising supplies have been the primary reason why inflation has declined.

And more job-seekers are still coming off the sidelines. The proportion of adults in their prime working years — ages 25 through 54 — who either have a job or are looking for one has reached its highest point in two decades. “Employers today are saying, ‘Well, my business is a little down. I can stomach holding on to these employees for now. I really don’t want to go through having to find and then train good employees again.' ”Another reason why high interest rates haven't caused unemployment to jump is that many households and companies were better insulated from rate hikes than in the past.

 

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