Over the past 11 months and as recently as Tuesday the Federal Reserve has consistently reiterated its mission to get the U.S. Economy back to full employment. We are not there yet. The labor participation rate remains below 2008-2009 financial crisis levels. Let me know your thoughts on the below (particularly if you are on the corporate side) as it relates to the relationship between interest rate increases and hiring.
The Fed believes that higher interest rates may cause companies to reduce hiring. Thinking about Technology companies, I’m not sure that a gradual hike in the short-term rate to 1% would cause many Technology companies to slam the brakes on hiring.
For example, many Technology companies that were around for the 2008 financial crisis have taken a disciplined approach to hiring since that time. Over the past 12 years many of those companies used cheap debt (a fair amount of it variable rate) to fund share repurchases and M&A activity. It seems to me that were the Fed to increase rates next year, most Technology companies would pump the brakes on share repurchase activity before they would freeze or slow the pace of hiring software engineers, developers and architects. Similarly, I do not believe that M&A activity would grind to a halt. This would be especially true of Enterprise Software and Tech-Enabled Services firms in my view.
However, when the day comes that the Fed’s hand is forced to exercise restraint by ending QE and refusing to subsidize massive fiscal transfer payment policy, all bets will be off.