The Federal Reserve raised interest rates on September 16. Sixteen days later, the government told us employers added 29,000 jobs last month, when economists were expecting something closer to 85,000 or 90,000.
That’s the timeline. Make of it what you will, but I’d make of it this: somebody pulled the brakes right before the car started skidding.
The hike was a quarter point, to a range of 3.75% to 4%, and it was unanimous. It was the first increase since 2023. The Fed’s stated reason is that inflation, running around 3.4%, is stubbornly far from its 2% goal. Fine. That’s a real problem, and I’m not one of those people who thinks the Fed should be abolished because it’s a Tuesday.
But the jobs report landed like a wet towel. Unemployment ticked up to 4.2% from 4.1%. Hourly pay rose just 0.1% for the month, and is up 3% over the year. And the Labor Department quietly revised July and August down by a combined 60,000 jobs, so the hiring we thought we had mostly wasn’t there.
Do the math on that pay figure. Prices up around 3.4%, paychecks up 3%. That’s a pay cut. Most people got one this year without anyone sending a memo.
Now add the Fed’s contribution. Higher rates don’t hit billionaires much, who tend to be on the lending side of things. They hit the guy carrying a credit card balance and the couple trying to buy a house with a mortgage rate north of 7%, plus whichever small business owner needs a loan to hire the person who just didn’t get hired. Those are the folks the Fed’s quarter point lands on, and they’re the same ones whose raises just came in under inflation.
My test for any government move is the one I use on regulation: does it solve the stated problem, or is it a press release? A rate hike isn’t theater. It’s a real tool with real effects. The trouble is that it’s a blunt one, and the Fed was swinging it based on data that, we now know, was rosier than reality. Weeks later the labor market looks softer, and the people who set rates are reading the same rearview mirror as everyone else.
Markets noticed. Traders have cut their odds of another hike at the October 28 meeting sharply, and stocks jumped on the news that the economy was doing worse. Read that sentence again. Wall Street celebrated 29,000 jobs because it meant the Fed might ease off. That tells you whose economy the rate decisions are being watched for.
I don’t know if the Fed was wrong. I do know it moved on the numbers it had, and those numbers just got revised into a different story. If the next inflation report on October 14 and the next jobs report both come in soft, the Fed will have spent September making borrowing more expensive for people who were about to need cheap borrowing.
Hiking into a weakening job market isn’t a policy disagreement. It’s a mistake with a 3.75% price tag, paid by the people who can least afford it.
My two cents: if you’re going to squeeze everybody to fight inflation, at least check whether the patient still has a pulse first.