While the labor market remains tight, there are signs it is softening. In August, the economy added 315,000 jobs, so employers are hiring fewer people. But the labor market’s strength could have problematic implications for Federal Reserve policy, and therefore, the rest of us. I know what you’re thinking. How can a strong job market be a bad thing? It’s not that high levels of employment are necessarily bad for the economy, it’s just that the Fed is trying to fight inflation, and to do that, it needs to slow the economy down. And one (painful) side effect of slamming the brakes on the economy is a weaker job market. Which, at this moment in time, the central bank wants. In a tight labor market, there are more jobs than workers to fill them, and that mismatch makes hiring more competitive, leading to wage increases that can exacerbate inflation. A weaker labor market, where workers outnumber jobs, helps lower inflation, which is adding pressure on the wallets of many American families. While the Fed is committed to fighting inflation and its moves are having some impact, the labor market is still going strong. So here’s what you can expect next. The market tumbled on the news because a strong job market meaning the Fed will stay aggressive with its rate hikes. So even if you’re not investing, you’ll be impacted. If you want to buy a house, a car, get a loan, or have credit card debt, you’ll also feel the sting of higher interest rates as borrowing money gets more expensive. And let’s not forget, the higher interest rates go, the more likely a recession becomes. But if we want inflation to drop, it’s a necessary evil we all have to suffer through together.
