Could Rising Interest Rates Mean Rising Unemployment?

How the Fed’s Rate Hikes May Affect Unemployment

The economy of the United States has been a rollercoaster ride over the last few years. The economy was strong before the pandemic, but the shut downs, supply chain issues, conflicts overseas, and changes in the talent pool have led to uncertainty and a high rate of inflation. On September 22, 2022, the Federal Reserve raised the target range for the federal funds rate to 3 to 3.25 percent, and has indicated that there may be more rate increases to come. Their goal is to slow down inflation, but what effect will this have on unemployment?

The unemployment rate was around 3.7 percent in August, and it is expected to rise to 4.4 percent next year. Unfortunately, that means that over a million workers will likely lose their job and may have a difficult time finding another with similar pay. The Fed has stated that is what is needed to bring the economy back into balance, curb inflation, and hopefully prevent a significant recession. As an employer, what can you do to help keep your unemployment costs as low as possible? 

Be on the lookout for fraud

Make sure you are not paying more unemployment charges than necessary. Fraud was rampant during the pandemic and the latest estimate from the Labor Department’s Office of Inspector General (OIG) is that more than $163 billion could have been paid out improperly, with a significant portion attributable to fraud. That’s billions with a “B”! The OIG is committed to improving the efficiency and integrity of the Unemployment Insurance (UI) program, but there is obviously a lot of work to be done to help the states identify and combat fraud before it happens. For now, here are a few preventative measures you can take:

• Keep your workforce informed and educated so they know how to identify a fraudulent claim

• Scrutinize every claim, since the person named on the claim may never even have worked for you

• Verify benefit charge statements to help ensure the accuracy of each claim

Understand the importance of hearings

If you have a former employee who was denied benefits and believes they deserve them, the case may go to court. Whether they have a strong case or not, hearings take time and effort and can be a distraction from your day-to-day business. Some best practices include:

• In the case of a discharge for cause, make sure you have employee acknowledgement of your policies and have consistently applied performance documentation to all employees. 

• Do your research to understand how to prepare for a hearing, including documentation, witness testimony, and if you are going to be allowed to cross examine the claimant.

• It may be time to engage a hearings representative who specializes in these types of cases. Most employers are not experts in legal procedures, and mistakes can cost thousands of dollars. 

Get former employees back to work as soon as possible

If you do need to lay off members of your team, it is in everyone’s best interest for them to get back to work as quickly as possible. Offering Reemployment Services can help reduce your business costs, protect your brand, and better equip your separated employees to succeed. 

If you would like to learn more about how to position yourself better if unemployment rises, check out Help Protect Your Company From Fraudulent Unemployment Claims, listen to our podcast Why Should I Worry About Unemployment Hearings, and learn more about our Reemployment Services. 

The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.