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Unemployment hits a near 50-year low and the Fed cuts interest rates again But when will consumers feel the impact?

Posted in Beyond Finances on November 4, 2019

In early October the jobs report indicated that unemployment hit a near 50-year low at 3.5 percent in September, and on Oct. 30, the Fed announced yet another interest rate cut.

But also in that same time period, it was reported that Kroger would lay off hundreds of workers. Less than two weeks later, Uber announced a third round of cuts. John Deere also announced cuts and so did are many others. Early November it was reported that the U.S. economy added 128,000 jobs in October. So what gives? Is the latest job report a true representation of what’s really going on when it comes to employment?

This year the Fed has held a number of “Fed Listens” events across the country. The Oct. 4 event held at the Federal Reserve Board in Washington D.C. was the 12th out of 14 events the organization plans to hold this year. The topic for the Oct. 4 event was “Perspectives on maximum employment and price stability."

Federal Reserve Chair Jerome Powell opened the occasion by explaining that the Fed Listens events are held “to actively engage the people we serve” and “to better understand how monetary policy affects the lives of the people your organizations represent.”

The event included two panels of representatives from organizations that represent union members, small business owners, residents of low and moderate income communities, retirees, and others. In other words, average Americans.

Powell started with the good news – that unemployment is at a half century low and inflation is running close to or a bit below the Fed’s 2 percent objective.

“Overall the economy, as I like to say, is in a good place,” Powell said. “Our job is to keep it there for as long as possible.”

After 11 of the 14 “Fed Listens” events, Powell said the clear takeaway has been the importance of sustaining what he referred to as our “historically strong job market.”

Maximum employment

Lael Brainard, member of the U.S. Federal Reserve Board of Governors and chair of the Financial Stability Committee, posed the questions for the panel. Her first question was “Does it feel like a full employment?”

Panel members drove the responses indicating that the short answer is no citing barriers such as transportation, childcare, and student loan debt getting in the way of what would be opportunities. Other areas of concern were low wages, reduction in hours and reduced benefits, along with the lack the affordable housing.

Because of changes in the job market, the gig economy has boomed and the number of freelancers and independent contractors has grown. But, in general, freelancers and independent contractors aren’t protected by laws of race, age, and gender. So, when looking to the future and if we should experience another economic downturn, these workers won’t be eligible for aid such as unemployment.

The role of education plays a big part in looking to the future and jobs, and it was pointed out that not everyone needs a degree and that college isn’t the only path to success. People with trade skills are in demand these days and should be considered as  a viable path as young adults are looking to start a career.

Price stability

The price of goods and services affects everyone, but those who are 65 and older with a limited income are among the hardest hit where even a small increase in inflation can hurt. The biggest concern is the cost of health care. There’s a trend in that older Americans are having to keep or move their money into riskier investments to try to better meet the needs of retirement.

And there’s another side to low inflation. If inflation drops too low, it diminishes the stimulus ability – meaning that there’s no place to go to further stimulate the economy.

From a business perspective, the “other side” is hurting the ability to grow the bottom line. The general consensus of the panel is that businesses have benefited from stable pricing, but if this should change, low and moderate income communities may face difficulties in absorbing any inflation spikes.

Given the stability of the economy, wage appreciation isn’t keeping pace with other areas of the economy. Panel members cited the reason is the growing cost of health care and that employers are finding it a challenge to balance employees and customers. At the end of the day, employers are hesitant to increase prices in an effort to stay competitive.

Consumer confidence

Despite any talk of a possible downturn, there is still confidence in the economy. In 2018 it was reported that economic confidence was at an all-time high. And while many are optimistic, there are also those who are still struggling to make ends meet. Will the latest interest rate cuts help those who need help?

Lisa Mensah, president and chief executive officer of Opportunity Finance Network, said confidence comes from being able to provide for your family.

“It’s hard to be confident living paycheck to paycheck,” she added. “And one emergency away from financial ruin.”

To see and hear this event in its entirety, click here.

What are your thoughts on the economy? Do you think the climate reflects the latest jobs report? Will the latest interest rate cuts help or hurt consumer confidence? Share any of your thoughts in the comment section of this blog post.

 

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