Fed Officials Say Another Rate Hike Is Still Possible After a Weak Jobs Report: What It Means for Savers and Borrowers

A soft jobs report did not take a rate hike off the table, so the cost of borrowing and the reward for saving could keep shifting.

On Friday, Oct. 2, the government reported that employers added only 29,000 jobs in September and that the unemployment rate rose to 4.2%. Markets took that as a sign the Federal Reserve might hold off on raising interest rates again. But later that same day, two Fed officials said it is too early to know.

The Federal Reserve, often called "the Fed," is the central bank of the United States. One of its main jobs is to set a key short-term interest rate. When that rate goes up, borrowing tends to get more expensive and saving tends to pay a little more. The Fed raised that rate by a quarter of a percentage point in September, to a range of 3.75% to 4%. Its next meeting is scheduled for Oct. 27-28.

What the Fed officials said

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, spoke on Fox Business Network on Friday. According to Reuters, he said, "There is plenty of room for anything to be on the table." In other words, both a hike and a pause are possible.

Goolsbee also said the Fed wants to see "evidence put together that suggests we're headed back to 2%" inflation. Inflation is the pace at which prices rise. The Fed aims for prices to rise about 2% a year over time, and prices have been rising faster than that.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, spoke with PBS NewsHour the same day. She said, "We'll still have a lot of information before our meeting at the end of the month, and so there's a lot of time to make a decision about what the right stance of policy is."

Hammack also noted that job growth has averaged about 41,000 a month over the past 12 months. She said that is "largely in line" with her estimate of the number of new jobs needed to keep the job market stable as the population grows.

Why a weak jobs report didn't settle the question

Normally, a slowing job market can push the Fed toward lower rates, because lower rates can help businesses grow and hire. But the Fed also has to worry about inflation, and prices are still rising faster than its 2% goal. That is the tug-of-war: weaker hiring argues for patience, while stubborn inflation argues for higher rates.

Hammack told PBS, "We have been missing on our inflation mandate for more than 5.5 years." A mandate is the goal Congress has given the Fed. The Fed's two main goals are stable prices and maximum employment.

What this means for your wallet

The Fed does not set the rate on your credit card or mortgage directly, but its decisions ripple through the economy. Here is how that could touch your money:

• Credit cards: Most credit cards have variable rates that move with the Fed's rate. If the Fed raises rates again, card interest could climb soon after. Paying down card balances may help limit the impact.
• Savings accounts and CDs: Higher Fed rates often mean better yields on high-yield savings accounts and certificates of deposit (CDs). A CD is a savings account that locks in a rate for a set time. If you are comparing accounts, it may help to check the current annual percentage yield (APY), which shows the interest you earn in a year, including compounding.
• Mortgages: Mortgage rates follow longer-term interest rates more than the Fed's short-term rate, but Fed expectations still play a role. If you are shopping for a home, it may help to compare several lenders and ask about rate locks.
• Car loans and personal loans: New loans could get more expensive if rates rise. Existing fixed-rate loans would not change.

What to watch next

The Fed's next decision is due at the end of its Oct. 27-28 meeting. Before then, officials will see more data on inflation and spending. Markets were not expecting a move at that meeting as of Friday, according to Reuters, but Fed officials made clear that nothing is locked in.

If rates do rise again, the biggest effect for most households is likely to show up on variable-rate debt like credit cards and home equity lines of credit.

This article is for education only and is not financial advice. Everyone's situation is different.