The jobs report shows a gain of 428,000 jobs: real-time updates




Federal Funds Target Rate

Federal funds

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Federal Funds Target Rate

Federal funds

trend

Federal funds

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The Federal Reserve is trying to cool the searing US job market. But it could take months before these efforts begin to bear fruit.

The central bank said Wednesday it would raise interest rates by half a percentage pointt, the biggest increase in more than two decades, and begins to reduce its bond holdings in an attempt to curb inflation. In a press conference following the announcement, Fed chairman Jerome H. Powell mentioned the labor market, and in particular the record number of job vacancies compared to the number of unemployed workers, as a reason policy makers have become more aggressive in recent months.

“You can see that the job market is out of balance: you can see that there is a shortage of manpower,” said Mr. Powell.

Higher interest rates should, in theory, result in lower demand from both consumers and businesses, leading companies to post fewer jobs and hire fewer workers. Mr. Powell hopes this will allow the labor market to rebalance without an increase in the unemployment rate.

But those changes won’t be noticeable overnight. Interest rates take time to affect the economy, and there are reasons to think the process may take longer than usual this time around. Consumers, on the whole, are sitting on trillions of dollars in money saved during the pandemic, and many seem eager to spend it on long-delayed activities like travel. This could mitigate the impact of Fed policies, said Michelle Meyer, US chief economist for Mastercard.

“The buffer available to the consumer is substantial, which means it may take longer to see the impact” of the tariff increases, he said. “The more resilient the economy and the stronger it is, the more the Fed will have to take interest rates to see that the dampening of demand depresses inflation.”

However, interest rates will eventually have an effect, Ms. Meyer said. One of the first places where Fed actions are likely to show up is the housing market. Mortgage rates have risen significantly, leading to a steep drop in new mortgage applications, and there are signs that they do. Sales started to slow down. Construction activity – and construction work – will not respond as quickly, partly due to the long-standing shortage of homes for sale, but construction is likely to slow too.

The manufacturing sector is also likely to be affected by the rate hike. But the signs may be difficult to interpret: many economists already expected a slowdown in production this year as the pandemic recedes and consumers return to spend more on services rather than goods.