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The Federal Reserve has signaled that they intend to increase interest rates three times during 2018....

The Federal Reserve has signaled that they intend to increase interest rates three times during 2018. How will this affect the economy? Check out this video from The New York Times. (http://nyti.ms/1YfSbXA). What affect could the interest rate hike potentially have on unemployment? Why?

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Increased interest rates causes supply or credit freeze and lower availability of money which means firms have less money to spend and thus either unemployment rises or paycuts rise causing decline in disposable incomes which leads to subdued consumption. Hence the real GDP and prices both fall and thus inflation gets within targeted zone.

Unemployment can rise substantially as cash flows for firms decline considerably and thus their ability to spend in capex and opex falls causing mass layoffs to cut costs.

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