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When Is It OK to Use Another Job Offer to Get a Raise?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

We’ve all heard stories about leveraging a new job opportunity for a higher paycheck, or jumping at new job opportunities in the hope that they’ll offer a better salary.

When this strategy does work in your favor, you may see your salary rise at a much faster pace than your colleagues, who might choose to wait in asking for a raise during the next annual review cycle. Just consider these stats: Workers who change jobs see a 5.2% pay increase on average, according to a 2016 study conducted by Glassdoor Economic Research. That is more than double the average 2% pay increase the typical employee earns each year, according to the U.S. Department of Labor.

You don’t have to necessarily take the new job to get the higher paycheck. You could try to use it as leverage to get a raise where you currently work.

Amy Gallo, a contributing editor at the Harvard Business Review and author of the “HBR Guide to Dealing with Conflict,” tells MagnifyMoney she has seen firsthand how this can work for some employees.

In researching her book, Gallo spoke with an employee who had a hard time convincing HR to give her raise. But when she received an outside offer a year later, “HR was much more cooperative since there was a counteroffer in hand,” she said.

So, what is it about the counteroffer that controls the collective purse strings? In general, it reminds the company of how valuable you are, because sometimes they end up forgetting, especially if you’ve been there for a while. The counteroffer also gives the employee more leverage and information to compare with their current salary.

In her studies around negotiation for the Harvard Kennedy School, Hannah Riley Bowles, a senior lecturer, found that when people used an outside offer to raise their salary, it legitimizes their request for a higher salary. Still, despite its potential huge payoffs, the counteroffer, as you can imagine, can also backfire.

Paul McDonald, senior executive director for global staffing firm Robert Half, advises against using the counteroffer to boost your salary.

“It can burn bridges with the other firm and may cause your boss to question your loyalty and interest,” McDonald said.

In fact, in this 2015 survey, Robert Half, also a national recruiting firm, found that nearly eight in 10, or 78%, of CFOs said they wouldn’t be pushed to make a counteroffer to keep someone from leaving — and with good reason. There’s always a chance that the employee will leave shortly after anyway if they aren’t happy in their jobs to begin with. The Harvard Business Review reported that people who received a pay increase from a counteroffer started their job search again within six months.

So what’s the key here? When is it OK to use an outside offer to get a raise, and when is it not OK?

OK: If you’re genuinely interested in another job.

Generally speaking, it’s OK to use the counteroffer to get a pay increase or promotion if there is genuine interest in the other job. Because, if you’re genuine about your motives – for example, being paid fairly or getting additional responsibilities that you might crave – then you’re merely reminding the company that you’re a valuable asset it needs to support professionally, personally and financially in terms of growth.

Not OK: You’d like to stay with your current employer and are just using the new offer as leverage for more pay.

Be cautious if you’re using the counteroffer only to get a raise or promotion with no intentions of leaving. This carries much higher risk, Gallo warns.

“It may damage the social capital you have in that organization,” she said.

Jared Curhan, a faculty director for the Massachusetts Institute of Technology’s Negotiation for Executives program since 2011, agrees that this can be a “very dangerous strategy” but adds he wouldn’t rule it out altogether.

“I would say that if you really value your relationship, then alluding to your alternatives outside has to be done delicately because that could really damage your relationship,” Curhan explained.

The bottom line: Of all the tactics you could use to negotiate for more pay, using an employment offer from another job can potentially get you the greatest outcome — but also carries the most risk.

If you decide you’re willing to take the risk and go to your employer with another job offer, here are some tactics you should keep in mind:

Stick to the facts

First, always wait for the final offer letter before you begin negotiating with your current employer, says McDonald, who adds this a common mistake.

Next, research your worth and check out resources like Glassdoor, Salary.com, PayScale and the Robert Half Salary Guides to get an idea of your earning potential.

Talk to people in your industry about trends they’re seeing and consider other negotiable terms that affect your compensation package, like bonus and equity.

By getting a realistic idea of how your company measures up with its competitors, you are more prepared and can even potentially negotiate for education programs, like through General Assembly and Dev Bootcamp, which could boost your income in the long run.

Don’t go into the negotiation with a “me versus you” mentality

“The conventional view in negotiations is that it’s a battle between two sides like a seesaw and when one goes up, the other side goes down,” said Curhan. “So you can’t go up without the other side going down.”

However, when you ask business executives to list out their four most important negotiations ever, says Curhan, they tend not to be negotiations that are win-lose. Instead, they were typically negotiations where both parties walked away feeling like they did a little better. They had expanded the pie, so to speak, before splitting it between the two parties.

For example, if an employee is using another job offer to get a raise, instead of using a “you versus me” mentality which could sound more like a threat (“Match my offer or I’m leaving”), Curhan suggests thinking about it like metaphorically moving to the same side of the table. By looking at the issue from similar viewpoints, you can now jointly work on the problem together. The employee is no longer pointing the finger and saying their boss is the problem. Instead, they might say something like this:

“I want to thank you for introducing me to this company and for the offer that you made. I have also been doing some research and I would love to be able to work here, but I also have to pay attention to the offers I’m receiving elsewhere. And through that, I want to be able to feel like I’m being paid a rate that’s commensurate with the market. And you perhaps have done some research on the market, too. Maybe we can pool our research on the market together, and can jointly come up with a fair rate of pay.”

Consider the other party’s interest

Often when we enter negotiations, we think about our points and arguments, such as the 10 reasons we deserve a raise. While that’s important, says Gallo, if you only focus on that, you’re setting the conversation up to be a me vs. you battle, which is what Curhan advised against earlier. Instead, you need to also be thinking about what your boss is up against. That’s how the conversation will become more of a collaboration where you’re aligned in terms of the strategy of getting you what you need.

So think about what that person needs to say yes to you, suggests Gallo. Think about their concerns.

“For instance, when it comes to pay increase, managers are often worried about equity,” said Gallo. In other words, if you get a pay increase, what does that mean for how you are paid related to others on your team? “You have to think about that from your boss’s perspective,” she added, so think in terms of how can you help them say yes.

Knowing when to walk away

If you’re not paid fairly and it’s just about the money, by all means, bring that data to your boss, says Gallo. But before you go, know the point at which you’re willing to stay or go. So, say you want a $20,000 pay increase — are you willing to walk if your boss offered you $10,000 instead?

Back in January, Alison Fragale, negotiation expert and professor of organizational behavior at the University of North Carolina, told MagnifyMoney that before going into the negotiation, you should always be able to answer three questions:

  1. What are you trying to achieve?
  2. What’s your walkaway point?
  3. What’s the alternative?

At the end of the day, using an outside company’s job offer to get a salary increase is a risky tactic that if employed tastefully, could work in your favor. However, make sure your intentions are noble. For instance, if it’s just about the money and you’re genuinely interested in the other company, and could potentially see yourself working for them, then have that conversation with your current boss.

However, if you’re going to your boss with the intent to strong-arm them to meet your demands with no intentions of going through with your threats, then using the counteroffer could get professionally dangerous for you quickly.

And maybe most importantly, think about negotiations as an alignment or a collaboration instead of a “me versus you” mentality.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Vivian Giang
Vivian Giang |

Vivian Giang is a writer at MagnifyMoney. You can email Vivian here

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2019 Fed Meeting Predictions — No More Rate Hikes Until 2020

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The March Fed meeting put the kibosh on more rate hikes in 2019. With FOMC policy on pause, market interest rates should hold steady (or even decline in some cases) for financial products you use every day. Read on for our predictions for each upcoming Fed meeting and updates on what went down at the most recent conclaves.

What happened at the March Fed meeting

The Federal Reserve signaled no rate hikes this year, and the possibility of only one increase in 2020. The Fed has pivoted pretty rapidly from its hawkish stance in 2018 to a more dovish outlook as it puts policy on ice. This change in tone grows directly from the FOMC’s observation of slowing growth in economic activity, namely household spending and business investment. The Fed also noted that employment gains have plateaued along with the unemployment rate, which nevertheless remains at very low levels.

So the federal funds rate looks to remain at 2.25% to 2.50% for a year or more, and the FOMC highlighted that this is the not-too-hot, not-too-cold level that for now best serves its dual mandate to “foster maximum employment and price stability.”

The Fed also released its Summary of Economic Projections (SEP). The March SEP indicated a median projected federal funds rate of 2.6% for 2020, which is why everybody is discussing the possibility of at least one, small increase next year.

For those who were really hoping for at least one more rate hike, all is not lost — Tendayi Kapfidze, LendingTree chief economist, believes we shouldn’t take March’s decision too gravely. “There are special factors that suggest the economy could reaccelerate,” he says. “The government shutdown threw a wrench into things, slowing some activity and distorting how we measure the economy.” He also remarks that since the financial crisis, data in the first quarter has continued to come in weak, still leaving room for everything to reaccelerate in the second and third quarters. He points to the already strong labor market as a plus.

Fed economic forecasts hint at a possible rate cut by the end of 2019. Just as the Fed projects a slightly higher federal funds rate in 2020, it also posted a projected 2.4% for 2019. Note that this projected rate falls below the upper end of the current rate corridor of 2.5%. This means the doves may want to see a possible rate cut if improvements in the economic outlook don’t materialize by mid-year.

When asked about this potential rate cut, Fed Chair Jerome Powell emphasized the Committee’s current positive outlook, while also emphasizing that it remains mindful of potential risks. Still, he maintained that “the data are not currently sending a signal that we need to move in one direction or another.” He also remarked that since it’s still early in the year, they have limited and mixed data to consult.

Kapfidze offers a more concretely positive outlook, noting that the chances of a rate cut are pretty slim. “To get a rate cut, you’d have to have sustained growth below 2%. There would have to be further weakness in the economy, like if trade deals get messier, to warrant a rate cut.”

The Fed downgraded its economic outlook for 2019 for the second time in recent months. In line with Kapfidze’s predictions, we did see a weaker economic outlook coming out of this month’s Fed meeting. The median GDP forecast for 2019 and 2020 decreased from December projections, while it remained the same for 2021 and beyond. This comes hand in hand with the decreased fed funds rate projections.

The FOMC increased their unemployment projections, which Kapfidze found surprising because the labor market has been so strong. “Maybe they believe that those numbers indicate a deceleration,” he said, “but really, it has to be consistent considering the other changes that they made.”

Why the Fed March meeting is important for you

It’s easy to let all of this monetary policy talk go in one ear and out the other. But what the Fed does or doesn’t change has an impact on your daily life. Without a rate hike since December, we’re already starting to see mortgage rates fall. This is helpful not only for those who want to buy a home, but also for those who bought homes at last year’s highs to refinance.

As for personal loans and credit cards, we may still see these rates continue to increase, just at a slower rate. These rates have little chance of decreasing because lenders may take the current weaker economic data as a sign that the economy is going to be more risky.

Deposit accounts will feel the opposite effects as banks may start to cut savings account rates. At best, banks will keep their rates where they are for now, until more evidence for a rate cut arises.

Our March Fed meeting predictions

There’s little chance of a rate hike this time around. In a policy speech on March 8, Fed Chair Jerome Powell reinforced the FOMC’s patient approach when considering any changes to the current policy, indicating he saw “nothing in the outlook demanding an immediate policy response and particularly given muted inflation pressures.”

This is no different from what we heard back in January, when the Fed took a breather after its December rate hike. There was no change to the federal funds rate at that meeting, and Powell had stressed that the FOMC would be exercising patience throughout 2019, waiting for signs of risk from economic data before making any further policy changes.

Further strengthening the case for rates on hold, the reliably hawkish Boston Fed President Eric Rosengren cited several reasons that “justify a pause in the recent monetary tightening cycle,” in a policy speech on March 5. His big tell was citing the lack of immediate signs of strengthening inflation, which remains around the Fed’s target rate of 2%.

Even though there had been some speculation of a first quarter hike at the March Fed meeting, LendingTree chief economist Tendayi Kapfidze reminds us that the Fed remains, as ever, data-dependent. “The latest data has been on the weaker side, with the exception of wage inflation,” he says.

The economic forecast may be weaker than December’s. The Fed will release their longer-range economic predictions after the March meeting. These projections should include adjustments in the outlook for GDP, unemployment and inflation. The Fed will also provide its forecast for future federal funds rates.

Kapfidze expects we’ll see a weaker forecast this time around than what we saw in December. “I except the GDP forecast to go down, and the federal funds rate expectations to go down.” This follows a December report that posted lower numbers than the September projections.

Despite flagging economic projections, Rosengren offered a steady outlook in his speech. “My view is that the most likely outcome for 2019 is relatively healthy U.S. economic growth,” he said, again attributing this to “inflation very close to Fed policymakers’ 2 percent target and a U.S. labor market that continues to tighten somewhat.”

The Fed’s economic predictions offer clues to its future policy decisions. In September, the Fed projected a 2019 federal funds rate of 3.1%. That number dropped to 2.9% in the December report. With the current rate at 2.25% to 2.5%, there’s still room for more hikes this year. Keep in mind, however, that, the March meeting may narrow projections for the rest of 2019.

As for Kapfidze, he thinks we’ll see a rate hike in the second half of the year. “If wage inflation continues to increase and it trickles more into the economy, the Fed could choose to raise rates due to that risk.”

However, as of March 12, markets see the odds of a rate hike this year at zero, while the odds of a federal funds cut has risen to around 20%, based the Fed Fund futures.

Upcoming Fed meeting dates:

Here is the FOMC’s calendar of scheduled meetings for 2019. Each entry is tentative until confirmed at the meeting proceeding it. For past meetings, click on the dates below to catch up on our pre-game forecast and after-action report.

Our January Fed meeting predictions

Don’t expect a rate hike. The FOMC ended the year with yet another rate hike, raising the federal funds rate from 2.25 to 2.5%. It was the committee’s fourth increase of 2018, which began with a rate of just 1.5%.

But the January Fed meeting will likely be an increase-free one. Tendayi Kapfidze, chief economist at LendingTree, the parent company of MagnifyMoney, said the probability of a rate hike is “basically zero.”

Kapfidze’s assessment is twofold. First, he noted that the Fed typically announces rate increases during the third month of each quarter, not the first. This means a hike announcement would be much more likely during the FOMC’s March 19-20 meeting, rather than in January.

Perhaps more importantly, Kapfidze said there’s been too much market flux for the FOMC to make a new decision on the federal funds rate. He predicts the Fed will likely wait for more evidence before it considers another rate hike.

“I think a lot of it is a reaction to market volatility, and therefore that’s lowered the expectations for federal fund hikes,” Kapfidze said.

But if a rate hike is so unlikely, what should consumers expect from the January Fed meeting? Here are three things to keep an eye on.

#1 The frequency of rate hikes moving forward

It’s unclear when the next increase will occur, but the FOMC’s post-meeting statement could give a clearer picture of how often rate hikes might occur in the future.

The Fed released its latest economic projections last month, which predicted the federal funds rate would likely reach 2.9% by the end of 2019. This figure was a decline from its September 2018 projections, which placed that figure at 3.1%.

As a result, many analysts — Kapfidze included — are forecasting a slower year for rate hikes than in 2018. Kapfdize said some analysts are predicting zero increases, or even a rate decrease, but he believes that may be too conservative.

“I still think the underlying economic data supports at least two rate hikes, maybe even three,” Kapfidze said.

Kapfidze’s outlook falls more in line with the Fed’s current projections, as it would mean two rate hikes of 0.25% at some point this year. There could be more clarity after the January meeting, as the FOMC’s accompanying statement will help indicate whether the Fed’s monetary policy has changed since December.

#2 An economic forecast for 2019

The FOMC’s post-meeting statement always includes a brief assessment of the economy, and this month’s comments will provide a helpful first look at the outlook for 2019.

Consumers will have to wait until March for the Fed’s full projections — those are only updated after every other meeting — but the FOMC will follow its January gathering with its usual press release. This statement normally provides insight into the state of household spending, inflation, the unemployment rate and GDP growth, as well as a prediction of how quickly the economy will grow in the coming months.

At last month’s Fed meeting, the committee found that household spending was continuing to increase, unemployment was remaining low and overall inflation remained near 2%. Kapfidze expects January’s forecast to be fairly similar, as recent market fluctuations might make it difficult for the FOMC to predict any major changes.

Read more: What the Fed Rate Hike Means for Your Investments

“I wouldn’t expect any significant change in the tone compared to December,” Kapfidze said. “I think they’ll want to see a little more data come in, and a little more time pass.”

At the very least, the statement will let consumers know if the Fed is taking a patient approach to its analysis, a decision that may help indicate just how volatile the FOMC considers the economy to be.

#3 A response to the government shutdown

The big mystery entering January’s Fed meeting is the partial government shutdown. While Kapfidze said the FOMC’s outlook should be similar to December, he also warned that things could change quickly if Congress and President Trump can’t agree on a spending bill soon.

“The longer it goes on, and the more contentious it gets, the less confidence consumers have — the less confidence business have. And a lot of that could translate to increased financial market volatility,” Kapfidze said.

Kapfidze added that the longer the government stays closed, the more likely the FOMC is to react with a change in monetary policy. During the October 2013 shutdown, for example, the Fed’s Board of Governors released a statement encouraging banks and credit unions to allow consumers a chance at renegotiating debt payments, such as mortgages, student loans and credit cards.

“The agencies encourage financial institutions to consider prudent workout arrangements that increase the potential for creditworthy borrowers to meet their obligations,” the 2013 statement said.

What happened at the January Fed meeting:

No rate hike for now

In its first meeting of 2019, the Federal Open Market Committee announced it was keeping the federal fund rate at 2.25% to 2.5%, therefore not raising the rates, as widely predicted. This decision follows much speculation surrounding the economy after the Fed rate hike in December 2018, which was the fourth rate hike last year. In its press release, the FOMC cited the near-ideal inflation rate of 2%, strong job growth and low unemployment as reasons for leaving the rate unchanged.

In the post-meeting press conference, Federal Reserve Chairman Jerome Powell confirmed that the committee feels that its current policy is appropriate and will adopt a “wait-and-see approach” in regards to future policy changes.

Read more: How Fed Rate Hikes Change Borrowing and Savings Rates

Impact of government shutdown is yet to be seen

The FOMC’s official statement did not address the government shutdown in detail, although it was discussed briefly in the press conference that followed. Powell said he believes that any GDP lost due to the shutdown will be regained in the second quarter, providing there isn’t another shutdown. Any permanent effect would come from another shutdown, but he did not answer how a shutdown might change future policy.

What the January meeting bodes for the rest of the year

Don’t expect more rate hikes. As for what this decision might signal for the future, Powell maintains that the committee is “data dependent”. This data includes labor market conditions, inflation pressures and expectations and price stability. He stressed that they will remain patient while continuing to look at financial developments both abroad and at home. These factors will help determine when a rate adjustment would be appropriate, if at all. When asked whether a rate change would mean an increase or a decrease, he emphasized again the use of this data for clarification on any changes. Still, the Fed did predict in December that the federal funds rate could reach 2.9% by the end of this year, indicating a positive change rather than a negative one.

CD’s might start looking better. For conservative savers wondering whether or not it’s worth it to tie up funds in CDs and risk missing out on future rate hikes – long-term CDs are looking like a safer and safer bet, according to Ken Tumin, founder of DepositAccounts.com, another LendingTree-owned site. Post-Fed meeting, Tumin wrote in his outlook, “I can’t say for sure, but it’s beginning to look more likely that we have already passed the rate peak of this cycle. It may be time to start moving money into long-term CDs.”

Look out for March. Depending on who you ask, the FOMC’s inaction was to be expected. As Tendayi Kapfidze, LendingTree’s chief economist, noted [below], if there is going to be a rate increase this quarter, it will be announced in the FOMC’s March meeting. We will also have to wait for the March meeting to get the Fed’s full economic projections. For now, its statement confirms that household spending is still on an incline, inflation remains under control and unemployment is low. It also notes that growth of business fixed investment has slowed down from last year. As for inflation, market-based measures have decreased in recent months, but survey-based measures of longer-term inflation expectations haven’t changed much.

 

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Learn more: What is the Federal Open Market Committee?

The FOMC is one of two monetary policy-controlling bodies within the Federal Reserve. While the Fed’s Board of Governors oversees the discount rate and reserve requirements, the FOMC is responsible for open market operations, which are defined as the purchase and sale of securities by a central bank.

Most importantly, the committee controls the federal funds rate, which is the interest rate at which banks and credit unions can lend reserve balances to other banks and credit unions.

The committee has eight scheduled meetings each year, during which its members assess the current economic environment and make decisions about national monetary policy — including whether it will institute new rate hikes.

A look back at 2018

Before the FOMC gathers this January, it’s worth understanding what the Fed did in 2018, and how those decisions might affect future policy.

The year 2018 was the Fed’s most aggressive rate-raising year in a decade. The FOMC’s four rate hikes were the most since the 2008 Financial Crisis, after the funds rate stayed at nearly zero for seven years. This approach was largely based on the the FOMC’s economic projections, which found that from 2017 to 2018 GDP grew, unemployment declined and inflation its Fed-preferred rate of 2%.

In addition to the rate hikes, the FOMC also continued to implement its balance sheet normalization program, through which the Fed is aiming to reduce its securities holdings.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Dillon Thompson
Dillon Thompson |

Dillon Thompson is a writer at MagnifyMoney. You can email Dillon here

Lauren Perez
Lauren Perez |

Lauren Perez is a writer at MagnifyMoney. You can email Lauren here

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