Is the Job Market Cooling Too Quickly?

By: Anneken Tappe · July 11, 2024 · Reading Time: 2 minutes

Inflation isn’t the number one threat to the U.S. economy anymore if you ask Federal Reserve Chair Jerome Powell.

In his testimony on Capitol Hill this week, he noted a weakening job market is also on the central bankers’ minds.

Cooling Across Markets

In June, the unemployment rate rose to 4.1% from 3.6% the year before, the highest level since 2021, according to data from the Bureau of Labor Statistics. People are also staying unemployed for longer, a sign that it is becoming harder to find a job.

This slowly weakening job market comes as economic activity is cooling, due in part to elevated interest rates. The Fed has kept interest rates at a multi-decade high for a full year, in an attempt to tame inflation, which still remains above the Fed’s target rate of 2%.

Higher interest rates make it more expensive to borrow money for individuals and companies, which can slow down economic activity and cool inflation. But it can also pressure American households — both directly, through higher rates on debts, and also indirectly as slower business growth can weigh on hiring.

Balancing Act

The Fed now is facing a difficult decision. Lowering interest rates too soon could cause inflation to come roaring back. But waiting for too long to cut rates could hurt the labor market.

In fact, the speed at which the unemployment rate has risen has set off at least one red flag. The so-called Sahm Rule, which is considered a recession indicator, says that a downturn may be ahead when the jobless rate rises at least half a percentage point in 12 months or less.

That said, the U.S. labor market is still strong by historical standards, and the economy added 206,000 jobs in June, in line with economists’ expectations. The next few months may mark a critical to see what direction the economy, and the Fed, are headed in.

Looking for more stories like this? Check out On the Money — SoFi’s one-stop-shop for news, trends, and tips!

Check it out

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

Communication of SoFi Wealth LLC an SEC Registered Investment Advisor

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.


TLS 1.2 Encrypted
Equal Housing Lender