The Federal Reserve slashed interest rates by a bold 50 basis points on Wednesday. That should make it easier to get a job — eventually.
The half-percentage-point rate cut, which was larger than many investors originally expected, will lower the interest that Americans pay on debt like credit cards and car loans.
It will also affect hiring across the economy: The Fed’s decision was driven in part by the state of the labor market, which officials said had slowed enough to justify a bigger initial cut.
“As inflation has declined and the labor market has cooled, the upside risks to inflation have diminished and the downside risks to employment have increased,” Federal Reserve Chair Jerome Powell told reporters Wednesday.
Could a rate cut boost your own job prospects? It depends on your industry — and it might take some time. Here’s how interest rates can spur hiring, and why that dynamic differs across industries.
How do interest rates affect the job market?
Federal Reserve officials are tasked with two primary goals, often called the “dual mandate”: to keep prices stable and to keep unemployment low.
It can be difficult to balance those obligations. For example, in the months after the COVID-19 shutdowns, when there were more job openings than available workers, unemployment was extremely low and businesses offered higher wages to lure employees. That, along with a variety of other economic factors, helped drive up inflation.
But as price increases have cooled over the last year, Fed policymakers have turned their attention to the labor market. The economy is slowing, and that means the number of job postings is falling and the unemployment rate has crept up from historic lows. And, as many workers have already noticed, it’s getting harder to land a new job — or a raise — than it was a couple of years ago.
When the Fed lowers interest rates, that can boost the labor market in a couple of ways: First, lower rates drive down the cost of borrowing to buy a home or a car or to carry a balance on a credit card. That puts dollars back in consumers’ wallets — and as consumers spend, they power economic growth.
Second, when rates are lower, companies can borrow money more easily to make new investments and grow their business, which can then require more employees. Mark Vitner, an economist based in Charlotte, N.C., gave the example of a local restaurant chain. When the economy is growing, consumers are spending and interest rates on commercial loans are low, the owner is more likely to invest in opening another location — and would need to hire more staff to support it.
Which industries will feel the effects first?
Certain industries will respond faster to falling rates — and will ramp up hiring more quickly as a result.
Which businesses tend to get a boost from a rate cut? Any that rely on lots of borrowing, said Phil Powell, the executive director of the Indiana Business Research Center and a professor at Indiana University’s Kelley School of Business.
That might include a plant manager who can invest in a new piece of equipment, for example or a car dealership whose customers can get more affordable loans.
Industries like construction, real estate, and manufacturing tend to be the most sensitive to shifts in interest rates — and they could pick up hiring more quickly as a result, said Tyler Schipper, an economist at the University of St. Thomas in St. Paul, Minn.
Typically, this category also includes growth-intensive industries like tech, Schipper said, in which companies often borrow money to keep expanding. But many tech companies overhired in the wake of the pandemic, and a rate cut alone is unlikely to spur a similar hiring frenzy.
“I don’t think the pendulum swings the other way,” Schipper said. “A lot of what we were seeing in [tech hiring in] 2022 was still hangover effects from the pandemic.”
Companies in other industries will be less affected by the Fed’s move. Healthcare employers have steadily added jobs over the past few years, even as other sectors have slowed. That trend isn’t likely to change.
Schipper also doesn’t expect the retail leisure and hospitality industries to get much of a boost.
Right now there’s a lack of “churn,” or cycling of workers through the labor market, he added. Companies haven’t made mass layoffs, and workers aren’t quitting their jobs in very large numbers, either. Less churn isn’t great for employees, who can often win bigger pay raises by switching jobs.
“The value of this rate cut is it might really help shake that loose,” Schipper said.
Will lower interest rates make it easier to find a job?
The Fed’s rate cut will eventually boost the labor market. But don’t expect to see a flood of new job postings right away, economists said.
“I wouldn’t expect rate cuts to instantly make the job market hum again,” Daniel Zhao, lead economist at the job site Glassdoor, said in an interview ahead of the Fed’s announcement. “At the very least, we should expect it to take a few months for changes to show up in the jobs report.”
It could take more than a year for the effects of a rate cut to fully work their way through the economy, Vitner told MarketWatch ahead of the Fed meeting.
“Changes in monetary policy take about 18 months to fully be reflected,” he said. “It will take some time for that to kick in.”
Phil Powell, an Indiana University professor, said it will take at least six months for the labor market to feel the effects of a cut.
In any case, the way Zhao sees it, a rate cut was probably necessary to keep the labor market from cooling even further.
“The job market is at an inflection point right now,” he said. “I think the job market is moving into territory where we should be concerned about the risk of more substantial deterioration. We’re not there yet, but clearly, the balance of risk is shifting.”
That doesn’t necessarily mean the worst is ahead, Schipper said. In most examples from modern history, the Fed lowered rates when the economy was already in freefall. This time around, that’s not the case.
“If you take [Fed Chair] Powell at his word that we’re doing this because things are good and we want to keep it there, then it’s really different from a lot of rate cuts [in the past],” he said.