Why the US job market has defied rising interest rates and expectations of high unemployment

Last year’s spike in inflation, to the highest level in four decades, was painful enough for American households. Yet the cure — much higher interest rates, to cool spending and hiring — was expected to bring even more pain. Grim forecasts from economists had predicted that as the Federal Reserve jacked up its benchmark rate ever higher, consumers and businesses would curb spending, companies would slash jobs and unemployment would spike as high as 7%. Yet so far, to widespread relief, the reality has been anything but: Inflation has tumbled from its peak of 9.1% in June 2022 to 3.7% on the back of the Fed’s rate hikes. Yet the unemployment rate, at a still-low 3.8%, has scarcely budged.