There is an enormous amount of political debate over various pieces of legislation that are supposed to be massive job killers. For example, Republicans lambasted President Obama’s increase in taxes on the wealthy back in 2013 as a job killer. They endlessly have condemned the Affordable Care Act as a jobs killer. The same is true of proposals to raise the minimum wage.
While there is great concern in Washington over these and other imaginary job killers, the Federal Reserve Board is openly mapping out an actual job killing strategy and drawing almost no attention at all for it. The Fed’s job killing strategy centers on its plan to start raising interest rates, which is generally expected to begin at some point this year.
The Fed’s plans to raise interest rates are rarely spoken of as hurting employment, but job-killing is really at the center of the story. The rationale for raising interest rates is that inflation could begin to pick up and start to exceed the Fed’s current 2.0 percent target, if the Fed doesn’t slow the economy with higher interest rates.
Higher interest rates slow the economy by discouraging people from borrowing to buy homes or cars. They will also have some effect in discouraging businesses from investing. With reduced demand from these sectors, businesses will hire fewer workers. This will weaken the labor market, which means workers have less bargaining power. If workers have less bargaining power, they will be less well-situated to get pay increases. And if wages are not rising there will be less inflationary pressure in the economy.