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Rising Rates May Lead to Higher Unemployment

Federal Reserve officials have hinted that an increase in unemployment could be a necessary consequence of reducing inflation, according to The Wall Street Journal (subscription). 

Increasing inflation: The U.S. inflation rate hit 8.6% in May, a 40-year high. Americans are experiencing higher prices at grocery stores, gas pumps and across all commercial sectors. 

Rising rates: The Fed may raise its current short-term benchmark rate by as much as 0.75 percentage points this week—a larger hike than previously forecasted.

  • Meanwhile, its future plans might include rate hikes later this year that could slow hiring and economic growth in an effort to curb inflation.

A soft landing: “[In] recent interviews and public statements, Fed officials have sketched out a path in which unemployment rises this year, though not sharply, as the economy and inflation cool, a scenario [Federal Reserve Chair Jerome] Powell has referred to as a ‘soft’ or ‘soft-ish’ landing.”

  • “Achieving a soft landing ‘doesn’t mean that the unemployment rate needs to remain at 3.6%, which is a very, very low rate,’ [Powell has] said.”
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