Federal Reserve’s Interest-Rate Hike Campaign Impacts Labor Market
The latest data from the Labor Department reveals that job openings in the United States fell to their lowest level in more than two years in October. This decline serves as further evidence that the Federal Reserve’s efforts to raise interest rates are cooling the labor market. The report states that there were 8.7 million job openings in October, a decrease from the previously reported 9.3 million openings in the previous month, which was revised downward. Economists had predicted a reading of 9.3 million. This decrease marks the lowest level for job openings since March 2021.
Implications for the Labor Market and Inflation
The Federal Reserve closely monitors these figures to assess the tightness of the labor market and address inflation concerns. In response to the inflation crisis and the extremely tight labor market, the central bank has implemented the fastest pace of interest rate hikes in decades. To date, they have approved 11 rate hikes, resulting in the highest federal benchmark funds rate since 2001. Policymakers have indicated that they may consider additional rate hikes if economic data indicates a resurgence in price pressures.
Room for a Change in Policy
However, the softer-than-expected jobs data may provide policymakers with an opportunity to conclude their tightening campaign. Oren Klachkin, a financial market economist at Nationwide, believes that this kind of report is what Fed officials want to see. Lower job openings, slightly higher layoffs, and steady quits indicate a healthier balance between labor demand and supply. Klachkin suggests that this may lead Fed officials to halt further rate hikes, stating, “Fed officials are likely finished raising rates.”
Despite the decrease, job openings still remain historically high. Prior to the onset of the COVID-19 pandemic in early 2020, the highest recorded number was 7.6 million. Currently, there are approximately 1.5 jobs available per unemployed American. The number of Americans quitting their jobs has slightly decreased to 3.6 million, which constitutes around 2.3% of the workforce. This indicates that workers remain confident in their ability to find new employment.
Positive Compensation for Job Switchers
Switching jobs has proven to be advantageous for many workers over the past year. According to recent data from the Atlanta Fed, job-switchers experienced a 6.6% increase in their real hourly wage in September, whereas workers who stayed in the same job saw a 5.3% pay increase.
The report also reveals that layoffs remained relatively unchanged last month, hovering around 1.55 million.
