The Federal Reserve’s interest rate hikes to tame high inflation are increasingly looking to change one particular sector of the economy — the roaring job market.stated that while the economy has slowed from its 2021 pandemic highs and higher interest rates have weakened the housing market and slowed business investment, the labor market has continued to stay strong.
Powell noted employment has risen by an average of 378,000 jobs per month over the past three months. While the labor force participation rate showed what Powell called a “welcome uptick” in August, it has remained largely unchanged since the beginning of 2022. Powell said the Fed's projections show supply and demand in the labor market to “come into better balance” over time, easing the pressure on wages and prices. That translates into unemployment rising from 3.7% to 4.4% by the end of 2023. That means 1.5 million more Americans out of work.
“While he mentioned that unemployment may not go as high as in previous inflation-reduction cycles, the goal is still to bring down the number of job openings,” Garner said. “With a weaker labor market, demand will be pushed downward across the board, so the rate hike makes sense in the fight against stubbornly high inflation.”
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