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ECONOMY

The job market is cooling in the US: How can that affect inflation and interest rates?

A report has pointed to slower than expected job growth in August, portential evidence that rising interest rates are finally pushing people out of work.

Update:
A report has pointed to slower than expected job growth in August, portential evidence that rising interest rates are finally pushing people out of work.
Kevin LamarqueREUTERS

Interest rate hikes could be over, for now. There is evidence that the US labor market is weakening as interest rates take their toll on companies.

In August, private employers added 177,000 jobs, as reported by ADP, a human-resources company. This figure marked a decrease from the 371,000 jobs added in July and fell short of the 200,000 new jobs that economists had anticipated ADP would report for the month.

It remains to be seen what the data will show when the Bureau of Labor Statistics releases its employment situation document on 1 September.

How does the job market affect inflation and interest rates?

The Federal Reserve has not been liking the so-called tight jobs market. It can make fighting inflation more difficult as the point of rising interest rates is to force companies to cut back, ultimately with them letting staff go. Month after month job openings kept increasing.

This new data could suggest that this is coming to an end; missing the target could point to the interest rates doing their desired job. With the latest job growth information shows that job creation is slowing down, it might be an indicator of potential economic slowdown.

This makes it more likely that the Fed will not increase interest rates further at its next meeting in September. The Fed has raised rates 11 times since early 2022.

“We anticipate August’s employment report, due out Friday, will show signs of slower jobs gain, and will keep the Fed from implementing further increases to the policy rate,” noted Oxford Economics in a Tuesday research report.

There is more data that will be released before the Fed makes its decision.