The Federal Reserve resumed cutting interest rates earlier this month to revive a stalling job market. But lower borrowing costs alone won’t quickly solve the hiring drought. Cheaper credit boosts demand, especially for homes, yet many businesses blame weak hiring on high costs, tariffs, and tight credit. Traditional rate-cut channels—stock gains and mortgage relief—carry less force than usual.
Fed Chair Jerome Powell called the labor market a “curious kind of balance.” Layoffs remain rare because sales are steady, but hiring has slowed to a crawl, leaving job growth barely positive.
Rate cuts may not solve the job market issues
A quarterly survey of 523 CFOs by Duke University and the Atlanta and Richmond Fed banks found about reducing employment by one-fifth due to tariffs. Some companies implemented layoffs, while others frozen open positions.
Businesses of all sizes are affected by the slowdown. Starbucks announced last week that it would eliminate 900 positions due to declining sales, increased labor costs, and rising coffee prices.
Small businesses seem particularly cautious. Vistage Worldwide surveyed 658 people, and just over half of them anticipate hiring in the upcoming year. This is up from April but still far less than the 71% of respondents in December.
According to founder Albert Hazan of New York-based POP Creations, tariffs have reduced profits by 30% this year. In order to save money, the 16-person home décor and storage products company only added two employees in Brazil instead of the four they had originally planned. “Before all of this, it was shaping up to be a really good year,” Hazan said.
Following a near-stall in job growth and a slight increase in unemployment, this month’s rate cut was the first since December. By the end of the year, officials indicated two more cuts. However, their options are limited by inflation above the Fed’s 2% target, and rate changes take time to affect the economy.
The Fed acted too late for some companies. Due to rising labor and ingredient costs, Ethereal Confections, an Illinois-based chocolate company, laid off one-fifth of its thirty employees last year. According to co-owner Michael Ervin, pressure was increased by pandemic debt forgiveness shortfalls and increased borrowing costs resulting from a bank takeover. “We had to raise prices significantly to respond to inflation and losing access to credit,” he said.
Featured Image Credit: Anna Shvets; Pexels: Thank you!
