On Wednesday, the Federal Reserve announced that it is raising interest rates from zero for the first time since they were lowered to that rock-bottom level in December of 2008. That signals, at least in part, that the Fed’s members believe that the economy has recovered enough from the Great Recession to require less assistance.
And on some measures, it’s hard to deny that the economy has made a drastic recovery from the time when zero percent interest rates were instituted. The unemployment rate has dropped dramatically since December 2008, falling from 7.3 percent to 5 percent as of the most recent jobs report earlier this month. The number of unemployed people has also fallen remarkably in the same time, from more than 11 million to just under 8 million.
Many of those people have since found a job: the number of employed people rose from a bit over 143 million to 149 million in that time period.
But not everything is looking so robust and healthy. In that same time frame, the labor force participation rate — how many Americans are either employed or looking for work — and the employment to population ratio — how many Americans have work — have both fallen since the end of 2008. In August, the reported labor force participation rate was at the lowest level since 1977.
As the economy has added more jobs and the employment rate has fallen, wages haven’t increased as much as might be expected in a tightening labor market. When there are fewer potential out of work people to hire, employers often increase pay to attract those who are available. Yet hourly earnings have only increased by $3.17 since the end of 2008 and have grown at about a 2 percent annual rate. The sluggish wage growth follows decades of stagnation.
The evidence is mixed, but it points to the fact that the Federal Reserve, through both lowering interest rates and its bond-buying program called quantitative easing, has helped economic and job growth as the country has come out of the recession. If it raises rates before the economy is back to full health, it could take away a key support and weaken the ongoing recovery.