What will happen to the job market if the Fed raises interest rates?

The Federal Reserve has two objectives: minimize inflation and maximize employment. It pursues these goals at Federal Open Market Committee meetings — one of which will happen in a little over a week — where it can tinker with the interest rate.

While the Fed might not raise interest rates at this meeting, it will certainly have to do so eventually to combat inflation. September’s inflation data showed that over the last year, the consumer price index rose 3.7%, the producer price index rose 6.3%, and the importer price index rose 8.1%.

But while higher interest rates can help fight inflation, they also impact the labor market. Recently, the Fed hasn’t been quite so focused on jobs, though.

“The thing I’ve been telling people is just that the labor market is actually, frankly, quite boring right now,” said Preston Mui, senior economist with the advocacy group Employ America.

Mui pointed out that boring isn’t bad.

“There are parts of it that are sluggish, such as wage growth and hiring,” Mui said. “But we’re not seeing any sort of imminent collapse either. And so I think that’s why the Fed feels comfortable shifting its focus towards inflation.”

If the Fed raises rates, some industries are likely to shed jobs — like housing. Courtney Shupert, an economist at MacroPolicy Perspectives, said that higher mortgage rates discourage new buyers.

“Simultaneously, homebuilders face higher financing costs, which results in less construction activity, and less hiring in that sector,” Shupert said.

Shupert said that companies that use a lot of temp workers are likely to shed them as rates go up.

“We’ve already seen temp jobs slow slightly — they lost 11,000 jobs in the month of September,” she said. “But I would expect that to potentially slow a bit more, just in reaction to the higher interest rates.”

Higher rates would also make things even harder for people who are already facing an uphill struggle to find work, and longer job searches.

“As you raise interest rates, those workers on the margin who are already facing a more-volatile labor market will find it much harder to find a job,” said Kate Bahn, chief economist at the Institute for Women’s Policy Research. “That means they’re more likely to accept a worse job that has lower income growth and worse benefits — because they have to.”

Bahn said that when interest rates go up, it can take anywhere from six months to two years before labor markets feel it.