The ongoing interest rate hikes enacted by the Federal Reserve could start to have a domino effect on American jobs, increasing unemployment by 1% in 2023, according to new projections as reported by The Hill.
While that doesn’t sound like much, 1% equates to about 2 million jobs on the line. Sen. Elizabeth Warren (D-Mass.) pointed this out in early March after grilling Federal Reserve chair Jerome Powell about his measures to continue raising interest rates as a means to curb inflation. The Fed, broadly speaking, advanced the idea that decreasing the demand for goods and services would likely bring costs down.
The latest interest rate hike came on March 22 as the Fed raised rates by 25 basis points, the ninth straight increase since this time last year. Currently, the target rate for federal funds sits around 4.75% to 5%. It’s the most “extreme rate hike cycle in 40 years,” Warren told Powell.
Currently, unemployment sits at 3.6%, and a full 1% jump to 4.5-4.6% would have grave consequences on the American job market. Such a figure could also help nudge the country into a full recession.
And there could be more rate increases coming if inflation doesn’t continue to come down, with the Fed saying the baseline interest rate could go as high as 5.1% by the end of the year, per The Hill, potentially leading to more job losses. Powell himself has “acknowledged that the strategy will lead to weaker wages and more layoffs — and that the most vulnerable workers will be disproportionately impacted.”
So, what can you do to prepare for economic turmoil and high unemployment?
First, suggested Ameriprise Financial, it’s key to look at your current financial situation. You’ll want to start building up your emergency fund savings, with at least three to six months worth of expenses set aside as a cushion.
Then, look at your total bills and see where you might be able to make cuts or adjustments. Canceling unnecessary subscriptions, cutting items like eating out and buying new clothing and seeing if you can get better rates on auto and homeowners’ insurance are some prudent steps to take.
You might also want to see if you can take on some side gigs — or, if applying for a home equity line of credit would be a feasible option to provide some extra money, look into that. In the case of HELOCs, just be sure to lock one in before rates continue their ascent.
If you think your job sector might be affected by layoffs — especially if you are in a field like tech that has seen consistent job cuts recently — you might also want to start looking at openings in other fields (and spruce up your résumé while you’re at it). When it comes time to do so, see GOBankingRates’ list of the 9 top job search sites for 2023.
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