New federal interest rate hike causes concern as U.S. unemployment rises, local experts weigh in
MARYLAND – The third time is the charm, or is it? That’s the question after the Federal Reserve’s latest interest rate hike of .75%. It’s the third rate hike in just a little over six months. It’s a move to fight rising inflation but experts say it could potentially leave many jobless. Experts say that the connection between the two is the power of demand. If the economy slows down, production does as well.
“So if people are purchasing fewer vehicles, purchasing a smaller home, or manufacturers are expecting people to purchase less then they in turn will employ fewer people to produce those goods,” Director of BEACON at Salisbury University John Hickman said.
Fed officials expect the unemployment rate to continue to rise through the end of the year and reach over 4% by the end of 2023. That increase could leave more than a million Americans without work. “The demand for workers in the service industry is currently hire than the supply,” Hickman said.
“The expectation is that it’s going to hit those workers the hardest based on history, but we don’t really know.”
Small business owners are taking the biggest hit, according to Salisbury Area Chamber of Commerce President Bill Chambers. They’re now face lending costs at the highest they’ve been in decades. “At some point, businesses are going to make the decision they’re not going to borrow money at any cost,” Chambers said. “When that happens or if that happens, will that mean business closures? Then, we have to talk about an unemployment rate that has nothing to do with a tight labor market.”
It’s not just small businesses, Chamber says industries like tourism, a vital factor for resort towns on Delmarva, will see less foot traffic. “We saw it this summer in Ocean City and we’re seeing a pretty dry Fall so far for the hospitality industry,” Chambers said. “You’re going to see the erosion of employers hiring people. They’re going to pull back because they’re fearful we’re going to have a horrendous holiday shopping season.”
Experts we spoke with say that those who opted out of working during the height of the pandemic are now entering back into the workforce, which will also contribute to that rise in unemployment. Chambers says he doesn’t anticipate those rate hikes ending anytime soon, as the Fed’s goal is get inflation back down to that ideal 2% that now sits at just over 8%.
