Friday’s number shows that the labor market remains strong, but is gradually ebbing.
For the past few years, Federal Reserve officials said they wanted the labor market to get into better balance after the pandemic ushered in a red-hot labor market, which at its height had a whopping 12 million job openings coupled with an ultra-low unemployment rate. That caused employers to raise wages to attract workers, but in turn, helped usher in high inflation, prompting the central bank to raise rates.
Now, Fed officials are starting to get a taste of what they wished for. It might not end well, though.
Friday’s jobs report showed the unemployment rate rose to 4.1% in June, the highest level since November 2021. It also marked the second straight month that the unemployment rate rose.
Fed officials are currently wrestling with when to cut interest rates, which are at the highest level since 2001. They’ve intentionally kept rates high for a long time to slow economic growth in order to rein in inflation, which remains above its 2% target.
The problem, though, is that the Fed is notoriously bad at timing its rate cuts correctly. It’s no simple task, since there are so many unknowns about the economic outlook.
Still, if the unemployment rate continues to rise, that could mean the Fed left interest rates at an overly restrictive level for too long, and should have cut rates sooner to minimize the economic fallout.
