New graduates are facing a changing job market.
The job outlook for the Class of 2025 is murky, and the Federal Reserve’s interest rate decisions are a big reason why.
The Fed doesn’t hire or fire workers, but its interest rate decisions influence how much it costs businesses to borrow, invest and expand. Higher interest rates can lead companies to slow hiring, while lower rates may do the opposite.
Right now, those rates are high—and have been for more than a year—as the Fed tries to bring down inflation. A pause on rate hikes is currently in place, but possible cuts later this year could shift the hiring landscape.
How Fed Policy Filters Into the Job Market
The Fed’s main lever is the federal funds rate, which affects borrowing costs across the economy. Between March 2022 and July 2023, the Federal Reserve raised interest rates 11 times. These rate increases are still working their way through the economy, making it more expensive for companies to take out loans, launch projects and hire new personnel.
“Rate cuts don’t work like a light switch,” says Aaron Cirksena, CEO of MDRN Capital. “It usually takes a few months for lower borrowing costs to go through the economy, especially into hiring budgets.”
According to the Fed, higher interest rates raise the cost of capital and can slow business investment, which may reduce job creation. Despite the Fed pausing rate hikes for now, they remain elevated, tightening labor markets in industries sensitive to financing costs, including:
- Venture capital funding in the U.S. totaled $170.6 billion in 2023, down slightly from 2020 and well below the pandemic-era peaks, according to the National Venture Capital Association.
- Commercial real estate experienced significant pullbacks in 2023. Total U.S. deal volume fell 51% in 2023, according to MSCI’s 2023 Capital Trends report, marking the sharpest year-over-year decline since 2009.
- Commercial mortgage loan originations, and nearly 27% of bank capital is wrapped up in maturing commercial property loans as of late 2023. When banks have less room to lend, it becomes harder to finance new development projects. That can put the brakes on construction jobs, commercial lending roles and even some local service jobs that rely on office and retail foot traffic.
“High rates tighten budgets across the board,” Cirksena says. “Companies become more cautious with hiring and often pull back on entry-level roles or internships first.”
High Rates Still Weigh on Hiring
For students tossing their caps this spring, that means a world of mixed signals: The healthcare sector is projected to add an average of 2 million jobs each year, but manufacturing lost 82,000 jobs over the past year and shed 1,000 in April alone, as wages dipped and hours shrank—signs of a sector continuing to cool. Logistics companies still need workers, but entry-level roles are dwindling as companies replace them with AI.
For new graduates, the job market offers both promise and pressure. The latest figures from the Bureau of Labor Statistics show 8.2% of people ages 20 to 24 were unemployed in April, nearly twice the 4.2% rate for those ages 25 to 34. Long-term joblessness is also rising, signaling deeper cracks in the transition from classroom to career.
What happens next depends not just on market forces, but on how quickly the Fed adjusts policy and how prepared grads are to adapt.
The Sectors To Watch if Rates Fall
If the Fed cuts rates later in 2025—as many economists expect—some sectors could rebound quickly.
“Lower rates will make it easier for these sectors to fund new projects, expand ops and hire staff,” says Cirksena.
Tyler Schipper, associate professor of economics at the University of St. Thomas, added that housing-related fields may also see renewed activity, generating jobs for real estate professionals and at banks, where there will be increased demand for refinanced mortgages.
Healthcare is one industry that continues to show strength regardless of rate moves. According to the BLS, healthcare added 51,000 jobs in April, with steady gains in hospitals and ambulatory care. The World Economic Forum’s Future of Jobs Report 2025 shows that demand for workers in two more industries, renewable energy and logistics, is only expected to grow.
What Grads Can Do Right Now
Despite the economic uncertainty, experts say new grads shouldn’t lose hope—but they should act strategically.
“Graduates should cast a wide net,” says Schipper. “Landing a first job is important, and they will not be in it forever.”
Cirksena recommends sharpening practical skills through certifications, short-term projects or targeted training. “Specialize quickly,” he says. “Even online certs or project-based work can help.”
Experts also suggest:
- Building a strong digital presence through an impressive LinkedIn profile and by reaching out to industry professionals.
- Being open to internships or temp roles that build experience and lead to full-time positions.
- Using AI tools to customize resumes and prep for interviews.
“We are in an environment where practical skills matter,” says Schipper. “Experiences where you solved a real problem—that’s what makes you memorable in an interview.”
And while the effects of a rate cut might take months to ripple through the job market, being prepared now can help grads move fast when the right opportunity opens up.
So, while the Fed’s wait-and-see approach isn’t delivering a quick boost to new grads, it’s not all bleak either. Growth continues in healthcare and green jobs, and if rates drop later this year, hiring could accelerate. For the Class of 2025, preparation and persistence are key.
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