The current job market feels like whiplash. Coming out of the pandemic, there was a huge pent-up demand for workers to help companies get back up and running. The job market was so hot that discussions centered around the Great Resignation trend with about 4 million Americans quitting their jobs on a monthly basis. Job seekers boasted about having numerous offers to choose from and companies complained they couldn’t find enough workers with the required skills and experience.
Seemingly overnight, everything has changed. Americans have woken up to the new reality of inflation. In an effort to keep the economy afloat, the Federal Reserve Bank and the United States government injected trillions of dollars into the marketplace, sending stimulus checks to families, enhanced unemployment benefits and other fiscal measures.
The fear and consequences of inflation may lead to a recession with massive job cuts, hiring freezes and job offers rescinded.
Why Should I Care About Inflation?
At first, U.S. Treasury Secretary Janet Yellen and others in the Biden Administration said that inflation was “transitory”—it wasn’t. As it turned out, inflation hit 40-year record highs. The costs of everything, ranging from gas to home prices, soared.
When the cheap money previously flowed into the economy, venture capitalists invested billions of dollars into tech startups. The prices of stocks and cryptocurrencies rose to dizzying heights, as both professional and novice investors bought and traded securities with the confidence that everything goes up.
Unfortunately, nothing goes up forever. Runaway inflation has pricked the everything-goes-up bubble. One of the results was that the spigots of cheap money were turned off, and the party was over. Instead of aggressively hiring, tech companies started cutting back and laying off personnel.
Why Fed Chair Jerome Powell Is Important
To understand what is happening, we need to pay heed to Federal Reserve Chairman Jerome Powell. In talks with Congress, Powell said that he needs to considerably raise interest rates to beat down inflation.
When interest rates rise, the costs of loans, mortgages and credit cards go up. The extra costs eat into the consumers’ pocketbooks. With less discretionary income, families will hold off on expenditures. They’ll spend less, make fewer purchases and avoid dining out as much or traveling as they used to. As the consumers constrict their spending, the economy will slow or even contract. This causes a recession.
While Powell didn’t say he is purposely causing a recession to battle inflation, his policies, based on history, could potentially lead to it. The rate hikes make it more difficult and expensive for companies to access capital, boosting the likelihood that the U.S. goes into a recession next year.
Are We Headed Into A ‘Hurricane?’
Jamie Dimon, the CEO of JPMorgan and one of the most respected Wall Street leaders, gave a stern warning to investors. He advised people to prepare for an upcoming economic “hurricane.”
At an investor conference in June, Dimon said, “That hurricane is right out there down the road coming our way.” The chief executive added, “We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.”
With the cost of capital starting to rise, tech and other sectors will pull back on growth, enact layoffs, impose hiring freezes and rescind job offers. During the year of over-exuberance, revenue and profits were not as important as achieving growth and scale. When a downturn happens and money is costly and not free-flowing, unprofitable companies will be headed toward trouble. If startups still have sufficient funds left from rounds of capital raises, they can buy time. Those that burned through their funds may be headed for trouble.
Layoffs, Hiring Freezes And Jobs Rescinded
Since May, tech startups have laid off nearly 27,000 workers, according to layoffs.fyi, which tracks publicly announced job cuts. Tesla CEO Elon Musk, who said that he had a “super bad” feeling about the economy, said the electric car manufacturer would cut 10% of its workforce. Musk, who also is in the midst of buying Twitter, said that there may be possible layoffs at the social media site.
Dara Khosrowshahi, CEO of Uber, informed employees through email that the ridesharing app company would start to treat hiring like “a privilege.” The chief executive said Uber’s decision to pump the breaks on hiring is due to the “seismic shift” in the market.
In June, Coinbase, the large cryptocurrency platform, announced on its corporate blog, “In response to the current market conditions and ongoing business prioritization efforts, we will extend our hiring pause for both new and backfill roles for the foreseeable future and rescind a number of accepted offers.” The cryptocurrency exchange platform then let go of around 18% of its workforce—or about 1,100 people.
Gemini, the crypto exchange founded by the Winklevoss twins, said a “crypto winter” is coming. The meteoric rise of cryptocurrencies and fervent hyping and buying of digital assets are falling back to earth. Gemini felt the change in the temperature of the markets and economy. In response to “turbulent market conditions that are likely to persist for some time,” Gemini is downsizing 10% of its astronauts—a term it coined for its employees. Two other digital asset platforms, Crypto.com and BlockFi, said they are laying off people as well.
Fintech unicorn Bolt announced it would lay off workers, as the tech bubble is slowly bursting. Klarna, a Sweden-based fintech company in the buy-now-pay-later space, announced plans to lay off about 10% of its global workforce, in a pre-recorded video message.
Robinhood, Netflix, Peloton, Cameo, Noom, On Deck, Workrise and others have also announced layoffs or temporary freezes.
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