When the Federal Reserve began increasing interest rates in 2022, the big worry was that it would put a lot of people out of work. Initially, the Fed predicted that the unemployment rate would need to rise from 3.7% to 4.4% in 2023, equivalent to 1.2 million job losses, to squash inflation.
But that’s not what happened. Despite the Fed raising the Fed Funds rate to 5.5%, the unemployment rate (shown in the gold-shaded area) remained steady at 3.7% in November, the same as it was in the fall of 2022. Meanwhile, headline inflation (the green line) decreased from its peak of 9.06% in 2022 to just 3.14% today.
In a sense, you could say this has been what economists call a “soft landing.” The Fed raised rates to slow down specific parts of the economy, inflation fell, and the overall economy didn’t suffer much of a slowdown in growth or employment.
Of course, the Fed would still like to see inflation fall more from here, down to their 2% target. But so far, things have turned out better than expected—and that is likely a big reason financial assets have done as well as they have this year.
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Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
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