The Fed has a few main jobs: currency stability, raising and lowering interest rates, keeping unemployment low, and new job opportunities high.
The Fed has indicated a strong likelihood of raising interest rates during their next FOMC meeting in June, but they said they’d only do it if unemployment keeps dropping and the economy stays stable… but that’s not what’s been happening in the past month.
Not Enough Jobs
The economy created the lowest amount of new jobs in May than they have in five years; with a severe drop in manufacturing and construction jobs available. This should make the Fed reconsider raising interest rates.
An interest rate hike can help a good economy, strengthening the stock market and making the value of the dollar rise, but in a bad or worsening economy, it will only make things worse.
Only 38,000 new jobs were created in May, the lowest since September 2010. These numbers seem confusing, as there have been a lot of news reports showed that unemployment dropped to 4.7%, the lowest since 2007. But that drop had more to do with people dropping out of the workforce, not with more people getting jobs.
This leaves the Fed in an uncomfortable position; they want to hike interest rates, this whole year was supposed to have rates slowly increase, but thus far we’ve only seen one rate hike, in December of last year. If they believe they economy is getting better, then they want to keep it strong with a rate hike, but if the numbers from May show anything, the economy isn’t getting better right now, but may actually be on a downhill slide.
You can bet everyone will be watching their June meeting very carefully. The odds of a rate hike just went down.
To continue reading more about unemployment and the Fed, read the Reuters article.