Why Does A Good Job Report Bad For The Economy?

Question

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

Answer 1

Theres something called the natural rate of unemployment, which occurs when recessionary pressures and inflationary pressures are balanced.

But when the unemployment is lower than the natural rate, that means the nation is experiencing inflationary pressures, with cash flowing around the economy but not actual value flowing.

To make sure this doesn’t aggravate or create long-term inflation, the Fed raises rates, lowering purchasing power and the ability for firms to higher more employees.