I understand why increasing interest rates can negatively affect the economy, but why would the Feds raise the rate because of the positive jobs report?
I always assumed that more people employed means more discretionary spending leading to more corporate profits.
In: 7
“A good economy” is one where we sort of see-saw between a few states constantly. The states go in a cycle:
* People have money to spend and spend it buying things. There are enough things for what everybody wants so they buy a little extra.
* There are not enough things to buy so people start offering to pay more.
* The extra money is used to make more stuff.
* Eventually there is more stuff than people need so they stop buying so much so places quit making so much.
Basically: we hope that we produce a lot of stuff, then the people who were paid to make stuff buy stuff, then buying stuff creates shortages that cause companies to invest money in making more stuff. If the “balance” is perfect, the cost of things doesn’t go up very much because every time it does, the people making stuff get paid a little more to make more stuff.
So actually for the above to work, we can’t always have 100% of available workers employed. That would mean when we need to make more stuff, we can’t find “free” workers who would like a new job. So we have to try to offer more money to get workers to leave other places, which means things have to cost more.
If a decent amount of people are unemployed, they won’t necessarily need a higher wage to want to take on a job. That makes it easier to make more stuff without having to raise costs.
Of course, it can go the other way. If TOO MANY people are unemployed, people don’t have money to buy stuff so there’s no demand, which means companies won’t be looking to hire people to make stuff. Worse, even if they want to make stuff, since so many people want jobs there isn’t an incentive to offer even the current wage: companies might try to cut wages.
So we’re never really in a “good” state for very long. The current state of unemployment and spending makes companies react. That affects next month’s state of unemployment and spending, which causes new reactions. It’s not always as simple as supply and demand because you can be in states like “high debt” where even if you raise employment and wages people aren’t *spending* the money they make so it doesn’t help the economy. Or you can have “high employment but low wages” so nobody can buy the things they’re making. There are lots of little problems that are really hard to solve because anything you change affects everything else.
So right now, the people who think high employment is bad believe the reason we have so much inflation is the average American has too much money. They believe this caused people to accept higher prices for goods which drives inflation. They worry so many Americans are taking out investment loans we have to put a stop to it. So they think the best way to put America back on course is to raise unemployment, keep wages steady, and ideally increase the average American’s reliance on debt for survival so they’ll be less picky about wages and other benefits.
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