MoneyWatch Buckle up, America: The Fed plans to sharply boost unemployment
In case the U.S. economy wasn't hurting enough already, the Federal Reserve has a message for Americans: It's about to get much more painful.
While the exact relationship between wages and inflation remains under debate, economists are much clearer on how raising interest rates puts people out of work. When rates rise, "Any consumer item that people take on debt to buy whether that's automobiles or washing machines gets more expensive," said Josh Bivens, research director at the Economic Policy Institute. That means less work for the people making those cars and washing machines, and eventually, layoffs.
In addition, people travel less, leading hotels to reduce staffing to account for lower occupancy rates. Businesses looking to expand say, a coffee shop chain opening a new branch are more hesitant to do so when borrowing costs are high. And as people spend less on travel, dining out and entertainment, those hoteliers and restaurateurs will have fewer customers to serve and eventually cut back on staff. "In the service economy, labor is the biggest component of your cost structure, so if you're looking to cut costs, that's where you'll look first," said Peter Boockvar, chief investment officer at the Bleakley Financial Group. While in Boockvar's view hiking rates is needed, the Fed's tactics strike him as aggressive. "I just have a problem with the [Fed's] rapidity and scale," he said. "They're coming on so fast and strong, I'm just worried the economy and markets can't handle it."