How the US Job Market Continues to Resist the Effects of Rising Interest Rates and Unemployment

Predictions Vs. Reality

At the end of 2022, numbers for the Federal Reserve interest rates and unemployment predictions painted a grim portrait of the year to come. In order to combat the year’s inflation spike, which reached a peak of 9.1% last June, interest rates were expected to rise dramatically, therefore slowing down spending. Businesses were predicted to be hit hard, many having to close their doors, leading to another devastating increase in unemployment.

The reality, however, was far less disastrous than the experts anticipated. While the Federal interest rate hike was significant—it also did the trick. Inflation continued to drop throughout the year, and is currently at just 3.7%. The unemployment rate rose a little at the end of the summer, reaching a recent high of 3.8%, but has stayed generally quite steady throughout the year.

Are We In For a “Soft Landing?”

In economic terms, a “soft landing” is seen by many as the ideal outcome after an interest rate hike. It’s an economic shift that results in neither sharp declines in spending nor dramatic increases in unemployment.

According to some experts, we’re right on track to have one. “The Fed has found success in lowering inflation without triggering a recession. The labor market, the only reliable evidence that the economy is in a recession, has cooled without pushing up the unemployment rate.” (Harvard Business Review)

How Did We Do It?

There are many variables that played a part in how we navigated our way to a “soft landing”, some of which were purposeful and others were happenstance. That said, there are three key factors that were instrumental in successfully lowering the inflation rate and keeping unemployment steady.

1. Replenished Supply Chains

During the first two years of the pandemic, unexpected shifts in the labor market and American purchasing habits led to wide-spread supply chain disruptions. Just as the American economy was starting to heal in late 2021 and 2022, unexpected global events like the strict Covid-19 protocols in China and the war between Russia and Ukraine, caused even more supply chain issues.

Thankfully, over the last year, these disruptions have been addressed and in general, consumers have found that everything they need—including items that were in high demand during the pandemic—are available. This, combined with the availability of workers, has helped to balance American spending and decrease the likelihood of future disruptions.

2. Shifts in the Job Market

As of the beginning of this year, it was estimated that 96% of workers were looking for a new position. This means businesses are no longer struggling to find the help they need as they continue to recover from the pandemic.

It’s important to note, however, that there are actually less open positions than there were this time last year—but that isn’t necessarily a bad thing.

Employers are exhausted after nearly three years of major shifts in hiring and firing. They want to do whatever they can to hold onto their current employees. They may not be bringing on as many new employees, but as Federal Reserve Chair Jerome Powell recognized back in September, “fewer job openings and more workers mean the labor market has been brought into better balance.”

3. Consumers and Business Owners Were Better Prepared

The third factor that ensured federal interest rate hikes didn’t send the US into another devastating recession, was simply the fact that Americans were better prepared. Back in 2020 and 2021, when interest rates were dramatically low, many borrowers reconsolidated or refinanced their debt, locking themselves in at a lower rate.

Also during that time, many Americans were receiving stimulus payments and loans from the government, which they continue to use to help keep their businesses afloat and pay off debt. In fact, “survey data on household behavior suggest that nearly 60 percent of the stimulus spending went to pay off debt or was saved.” (National Bureau of Economic Research)

In Conclusion

Last month, federal policymakers amended their economic projections by cutting the predicted inflation rate of 2024 from 4.2% to 2.6%. They also lowered the predicted unemployment rate for June 2024 from 4.5% to 4.1%.

Thankfully, things haven’t been as bad as the experts feared, and that means there are still a lot of opportunities for change and growth, not just on a national scale, but also on an individual level.

If you’re interested in finding out more about what career opportunities are available to you, or if you’re a business owner wanting to strengthen your current workforce and bring in top-tier talent, check out our website.