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Why is it difficult for the Federal Reserve to cut interest rates to save U.S. jobs? The amazing truth behind the icy recruitment of corporate recruitment
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Decision Analysis]: Why is it difficult for the Federal Reserve to cut interest rates to save U.S. jobs? The amazing truth behind the frozen recruitment of corporates." Hope it will be helpful to you! The original content is as follows:
—The Federal Reserve just restarted its interest rate cut cycle in September, aiming to stimulate the stagnant job market. However, relying solely on the traditional tool of interest rate cuts seems to be difficult to effectively activate recruitment activities in the short term. Many economic experts and business owners point out that the current difficulties in the job market are not simply due to insufficient demand, but are entangled in multiple factors such as high costs, tariff barriers and credit tightening. These problems greatly reduced the stimulus effect of interest rate cuts, causing the labor market to show a strange "balance": the layoff rate is sluggish, but the recruitment rate is also sluggish, and employment growth almost came to a halt.
The traditional role and current limitations of rate cuts
The Fed's interest rate cuts earlier this month were the first move since December, with officials also hinting that there may be two more rate cuts before the end of the year. This policy aims to boost economic demand by reducing borrowing costs, especially in areas that are highly sensitive to interest rates, such as housing consumption.
Historically, interest rate cuts have often driven stock prices to rise and mortgage interest rates to lower, thereby stimulating overall economic vitality. However, in the current environment, the effectiveness of this conventional leverage is significantly weakened.
xn--xm-6d1dw86k.companies reported that their recruitment difficulties are not weak demand, but are plagued by high operating costs, increasing tariffs and tightening credit channels. These factors make the indirect stimulus of interest rate cuts difficult to penetrate quickly into the employment level, causing the labor market to remain in a sluggish equilibrium: stable sales avoided large-scale layoffs, but the willingness to recruit also sluggish, and eventually employment growth almost stagnates. Fed Chairman Jerome Powell once described this state as "a peculiar balance", which reflects policy tools in a xn--xm-6d1dw86k.complex economic environmentThe feeling of powerlessness.
Deep reasons for slowing corporate recruitment
According to a quarterly survey conducted by Duke University and the Federal Reserve Bank of Atlanta and Richmond on Wednesday, interviews with chief financial officers of 523 xn--xm-6d1dw86k.companies showed that about one in five businesses have reduced their recruitment plans due to tariffs. Many xn--xm-6d1dw86k.companies choose not to fill vacancies anymore, and some even start laying off small jobs. This recruitment freeze is not limited to large enterprises, but is spread across xn--xm-6d1dw86k.companies of all sizes.
For example, Starbucks announced last week that it would lay off 900 employees due to rising labor costs and coffee prices, coupled with weak same-store sales, which directly reflects the squeeze on employment by cost pressure. Small businesses seem to be less willing to take the risk of hiring because of their weaker ability.
A recent survey of 658 small businesses by business coach and peer consultant VistageWorldwide shows that slightly more than half of businesses are expected to increase their employees in the next 12 months, which is higher than the level in April this year, but far below 71% in December last year, showing a slow and uncertainty in confidence recovery. These data vividly depict the cautious attitude of the business xn--xm-6d1dw86k.community in a high-cost environment, and recruitment activities are as hard to melt as ice.
The survival dilemma of corporate under the impact of tariffs
Taking New York-based POPCreations as an example, the xn--xm-6d1dw86k.company designed and imported home decoration, desktop storage and storage products based on licensing agreements with giants such as Disney and Marvel.
The xn--xm-6d1dw86k.company's founder Albert Hazan revealed that profits have fallen by 30% this year due to tariffs imposed on imports from China and India. To cope, they raised prices slightly, but most of the costs were digested by xn--xm-6d1dw86k.companies and retailers, which directly led to a shrinking recruitment plan: originally planned to add four employees, but eventually only two were hired. Even more extreme, the xn--xm-6d1dw86k.company gave up hiring two creative directors in the United States and instead recruited low-cost in Brazil in an attempt to relieve stress.
Hazan sighed that before all these changes, this year should have been a year of bumper harvests for the xn--xm-6d1dw86k.company, but rising pricing led to a decline in demand and revenue decreased accordingly. The chain reaction brought by this tariff not only xn--xm-6d1dw86k.compresses profit margins, but also indirectly curbs employment expansion, highlighting the heavy blow to small and medium-sized enterprises by trade barriers.
Credit tightening and small business financing difficulties
Credit tightening is another invisible killer that kills recruiting vitality.
EtherealConfections, a handmade chocolate maker in Woodstock, Illinois, is a 30-person, 14-year-old business whose co-owner Michael Irving said the rate cut came too late to affect their hiring plans.
Last year, the xn--xm-6d1dw86k.company's 20% layoffs resulted in a surge in raw material and labor costs, coupled with the acquisition of local banks, and the lines of credit replaced by fixed-rate loans. In addition, the government has only exempted some loans from the COVID-19 pandemic, further aggravated debtburden.
Irving stressed that unless interest rate cuts can substantially reduce raw material costs or labor spending due to tariffs, or interest rates drop to levels sufficient to allow refinancing, the Fed's actions will be difficult to work. The xn--xm-6d1dw86k.company currently operates retail stores, wholesale businesses and event venues, and has to raise prices significantly to cope with inflation and credit shortages, which further xn--xm-6d1dw86k.compresses the expansion space.
Similarly, Miami-based NCDigy, CEO of 46-person municipal and e-commerce digital technology provider, noted that financing difficulties have become the norm, and many business opportunities have been abandoned because xn--xm-6d1dw86k.companies or customers cannot obtain funds. He bluntly stated, "Acquiring capital is more difficult than ever, and it is not enough to just cut interest rates."
The Fed's regional branch survey also confirmed that only 52% of small business applicants received all the financing needed in 2024, far lower than 62% in 2019, which reflects that small businesses are much more sensitive to bank credit than large xn--xm-6d1dw86k.companies, while large xn--xm-6d1dw86k.companies rely more on stock and bond markets, which are already at high levels and have limited marginal effects on interest rate cuts.
The potential pull of interest rate cuts on consumption and housing
Although the overall effect is limited, interest rate cuts can still play a marginal role in some areas, especially interest rate-sensitive consumption such as the housing market. A drop in mortgage interest rates may stimulate residential sales, which will drive consumption such as electrical appliances and ultimately drive more recruitment.
For example, Andrew Pearson Glass, of Mount Airy, North Carolina, is a family-run custom glass desktop and countertop manufacturer that currently employs about 24 people, down from 30 in 2022. xn--xm-6d1dw86k.company CEO Andrew Brownfield is optimistic that if the Fed cuts interest rates twice, mortgage rates will be further lowered, and after the improvement of home sales, he can provide existing employees with more overtime opportunities or new staff. It is worth mentioning that the xn--xm-6d1dw86k.company even sees tariffs as an opportunity, believing that its price xn--xm-6d1dw86k.competitiveness has increased, although it has not seen a surge in orders.
On the other side, CEO of Makeup By Holly Beauty Partners in Richmond, Virginia, Holly Byrd Miller said the 0.25-percentage cut gives her more confidence to increase her credit line from $50,000 to $150,000, thereby adding several people to the existing 45 employees to launch a new cosmetics line. She admitted that a larger rate cut would be better. However, mortgage interest rates are more affected by long-term U.S. Treasury yields rather than the Fed’s short-term target. Currently, long-term bond yields are stable at more than 4%, and mortgage interest rates are still higher than the current level of most homeowners, resulting in limited refinancing savings.
Chad Cos, the research manager of mortgage analysis xn--xm-6d1dw86k.company Recursion, pointed out that although this can save money, it does not save much and it is difficult to significantly boost consumption.
Expert Perspective and Future Outlook
Robert Barbera, director of the Center for Financial Economics at Johns Hopkins University, pointed out incisively, "It is hard to say that high interest rates are the decisive factor restricting the American business xn--xm-6d1dw86k.community."
This emphasizes the structural limitations of interest rate cuts: it can indirectly stimulate financing and recruitment of large enterprises by boosting risky assets such as stocks and corporate bonds, but the financial market has risen and there is little room for incremental growth; for small businesses, although credit sensitivity is high, the current inflation is stubbornly higher than the 2% target, limiting the space for interest rate cuts, and the policy impact is lagging behind. Unless the employment situation worsens further, the Fed's actions will remain cautious. Overall, a pure rate cut alone is difficult to xn--xm-6d1dw86k.completely activate the U.S. job market, and it needs to play a greater role in a broader policy framework, such as easing tariff pressures and improving credit channels.
Faced with this "strange balance", business circles and policy makers need to jointly explore more xn--xm-6d1dw86k.comprehensive solutions to avoid employment stagnation becoming deeper economic risks.
The above content is all about "[XM Foreign Exchange Decision Analysis]: Why is it difficult for the Federal Reserve to save jobs in the United States? The amazing truth behind the frozen recruitment of corporate recruitment" and was carefully xn--xm-6d1dw86k.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your transactions! Thanks for the support!
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