The job market remains strong. What does that mean for your finances in 2023?

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What happened

Employers added 223,000 more jobs in December, according to the latest data from the Bureau of Labor Statistics. Unemployment fell slightly to 3.5% from 3.6% in the previous month, surprising many economists who had expected a weak labor market. “Finally, employers added 4.5 million jobs in 2022, the second-best year in job creation after 2021, when the labor market rebounded from the Covid-19 shutdown and added 6.7 million jobs,” the Wall Street Journal reported.

so what

On the face of it, a decrease in unemployment numbers That could translate to more job security in 2023. But it’s a little more complicated than that. Employment data is an important closely watched economic indicator, since there is a close correlation between jobs, inflation, and interest rates.

The Federal Reserve has been trying to curb inflation by dramatically increasing inflation rates, which negatively affects the economy and the labor market. Federal Reserve Chairman Jerome Powell has made it clear that he will do whatever it takes to keep high prices in check, even if it leads to recession. Unfortunately, there is a gulf between a rate hike and any subsequent slowdown, making it difficult for the Fed to know when it is raising rates enough – or if it has gone too far.

This is why strong job statements are a double-edged sword. This means more opportunities to earn extra cash in the short term. But if the Fed interprets the stronger-than-expected jobs data as a sign that the economy is still too hot, it could raise interest rates further. Some economists say so It could cause the unemployment rate to rise And more economic problems to come.

What now

The Fed controls something called Federal funds rate, which has an impact on our loans, mortgages and savings. Here are some of the ways high interest rates and uncertain economic conditions can affect our finances.

1. The high cost of borrowing money

When the Federal Reserve raises interest rates, it becomes more expensive to borrow money. The idea is that this slows the economy because people and businesses may spend less and borrow less.

If you hold a balance on your credit card or plan to obtain personal loan In the near future, you will likely pay a higher interest rate in 2023. It can sometimes take a few months for Fed actions to affect the APY you pay on any money you borrow. the most You can pay off debts In the coming months, even better.

2. Higher savings rates

One positive aspect of higher interest rates is that savers can earn more. APYs running top savings accounts They are much higher than they were during the early stages of the pandemic, and could rise even further in 2023. It’s not just the savings accounts; Certificates of deposit (CD) rates It is also increasing due to the actions of the Fed.

3. Increase the importance of the emergency fund

It’s tempting to see strong career numbers and think that everything will be fine next year. But given that many bigwigs in banking and business believe us You may stagnateNo harm in being prepared. If you do not have a file emergency fund With living costs of three to six months, try to get as far away as you can.

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