--- title: How the Fed Will React to Today's Surprising Jobs News description: Yes the employers added jobs and the economy is growing. Just don't expect immediate interest rate increases. authors: - name: Taylor Tepper url: https://money.com/author/taylor-tepper-3/ at_money_since: 2013 articles: 168 covers: - Economy and Politics - Banking - Business - Career Advice - Credit - Credit Cards - Education - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Retirement - Shopping - Taxes social: - https://x.com/TaylorTepper former_staff: true published: '2014-09-05T14:19:16.000Z' modified: '2014-09-05T14:19:16.000Z' section: Economy and Politics tags: - Economic Growth - Employment - Federal Reserve - France - GDP - Janet Yellen - Jobs - Jobs report - latest unemployment - Macroeconomic trends - philadelphia federal reserve - St. Louis Federal Reserve - Workers word_count: 753 canonical: https://money.com/jobs-federal-reserve-employment-yellen/ type: Article source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![140905_INV_JobsReport3](https://img.money.com/2014/09/140905_inv_jobsreport3.jpg) The Fed is unlikely to raise interest rates this year — and not just because of Friday's disappointing jobs report. Though the economy fell short of adding 200,000 jobs in August — as it had in the six prior months — the unemployment rate remains at a better-than-expected 6.1%. Consumer confidence, meanwhile, [rose](http://online.wsj.com/articles/consumer-confidence-rose-in-august-1409445237) in August and the economy grew by a robust 4.2% [last quarter](http://online.wsj.com/articles/gdp-expanded-at-4-2-rate-in-second-quarter-1409229416). Many have long-waited for the time when the economy picks up and the Federal Reserve raises interest rates along with it. Even the presidents of the St. Louis and Philadelphia Federal Banks recently [said](http://www.bloomberg.com/news/2014-08-22/fed-s-bullard-says-job-gains-pointing-to-earlier-rate-increases.html) the nation’s central bank should raise interest rates sooner than expected thanks to job gains and slightly rising inflation. But given muted inflation and the growing concerns in Europe — where the economy threatens to slip back into recession and central bankers are still slashing rates in a desperate attempt to jumpstart business activity in the region — Fed chair Janet Yellen was unlikely to act soon. And today's Labor Department report, showing that [only a modest 142,000 jobs were created](http://content.money.com/wp-content/uploads/2014/05/empsit.pdf) in August, only reinforces this. **Jobs** The unemployment rate has already dropped more than half a percentage point this year. ![US Unemployment Rate Chart](http://media.ycharts.com/charts/556c37c9fc3b8a292c99614577c00a39.png) [US Unemployment Rate](http://ycharts.com/indicators/unemployment_rate) data by [YCharts](http://ycharts.com) But that's just one way to look at the labor market. Another is the labor force participation rate. Since younger Americans tend to go school, and Baby Boomers are beginning to retire en masse, you can look at the participation rate for workers between the ages of [25 to 54](http://research.stlouisfed.org/fred2/graph/?chart_type=line&recession_bars=on&log_scales=&bgcolor=%23e1e9f0&graph_bgcolor=%23ffffff&fo=verdana&ts=12&tts=12&txtcolor=%23444444&show_legend=yes&show_axis_titles=yes&drp=0&cosd=1977-01-01%2C1977-01-01&coed=2013-12-01%2C2013-12-01&width=670&height=445&stacking=&range=&mode=fred&id=LREM25TTUSM156S%2CLREM25TTFRQ156S&transformation=lin&nd=&ost=-99999&oet=99999&scale=left&line_color=%234572a7&line_style=solid&lw=2&mark_type=none&mw=1&mma=0&fml=a&fgst=lin&fq=Monthly&fam=avg&vintage_date=&revision_date=). Before the recession almost 80% of those Americans were working or looking for a job. Now, 77% are. To put that into perspective, 81% of prime aged workers in France participate in the labor force. Another, more inclusive, employment metric is the so-called U-6 rate of unemployment — which includes unemployed workers, Americans who want to work but have stopped looking for a job, and part-time workers who'd rather put in full-time hours. The U-6 rate has [dropped](http://research.stlouisfed.org/fred2/series/U6RATE) from about 17% after the recession to 12% now, but that's still close to four percentage points higher than before 2008. ![u-6](https://img.money.com/2014/09/u-6.png) Here's [Yellen](http://www.federalreserve.gov/newsevents/speech/yellen20140822a.htm) from her Jackson Hole speech a couple of weeks ago: > At nearly 5% of the labor force, the number of such workers is notably larger, relative to the unemployment rate, than has been typical historically, providing another reason why the current level of the unemployment rate may understate the amount of remaining slack in the labor market. **Inflation** Despite [predictions](http://www.forbes.com/2010/05/17/fed-interest-rates-inflation-economy-opinions-columnists-wesbury-stein.html) of [increased inflation](http://www.nytimes.com/2011/02/10/business/economy/10fed.html?_r=0) thanks to unorthodox monetary policy, deflation has been a bigger concern since the recession than inflation. Nevertheless, some central bank officials are still worried about an unexpected rise in prices thanks to an improving jobs situation and want to head off that potential rise with higher interest rates. As Philadelphia Fed President Charles Plosser [said](http://www.bloomberg.com/news/2014-08-22/fed-s-bullard-says-job-gains-pointing-to-earlier-rate-increases.html) on a Bloomberg Radio interview, "I would rather us get started raising rates sooner and raise them more gradually than put them off and have to raise them very quickly." The Congressional Budget Office [disagrees](http://www.cbo.gov/publication/45653). The non-partisan agency predicted that over the next 10 years inflation will only rise around 2% a year, in a recent report. "CBO anticipates that prices will rise at a modest pace over the next several years reflecting slack in the economy and widely held expectations for low and stable inflation." Right now core inflation, according to the Federal Reserve's preferred measurement, grew by 1.5% in [July](http://blogs.wsj.com/economics/2014/08/29/inflation-stays-below-the-feds-target-for-27th-month/) over the previous 12 months. That's well below the Fed's target rate of 2%. **Europe** Depressed Americans need only look across the pond to see how badly our recovery could be going. The Euro zone area experienced [no growth](https://doc-14-1k-apps-viewer.googleusercontent.com/viewer/secure/pdf/6ldh0v0m8ln7dpl3rmqmejd8ed0l7mfe/61qcfplt6e9nmbcg9q1nqcimk6acm1nl/1409842725000/gmail/01047554865300132799/ACFrOgDDbg05hdjOTESbc9lfMP79RQgPlKkSKpXiAqQ5Xtt_twXboACHhnNUjJwx0IH4Z8a5Obef7coEBs12UGh8-CZ-UQ04t8Is29Hy8Z2slUdIrfz-WI5dkMXiZWQ=?print=true&nonce=4el93dvmeaege&user=01047554865300132799&hash=bn0s4i8fk5p3dkgdr4bpc8c5pliuj0r7) in the second three months of 2014. Combine that with [ultra-low inflation](http://online.wsj.com/articles/euro-zone-inflation-cools-further-in-august-1409305720) and you have the recipe for economic stagnation. Even the vaunted German economy stalled. This three-year experience of little economic traction follows the European Central Bank's decision to [raise interest rates](http://www.theguardian.com/business/2011/jul/07/ebc-raise-interest-rates-debt-crisis) in 2011 during the sovereign debt crisis in order to [fight inflation](http://money.cnn.com/2011/04/07/news/international/ecb_interest_rate/). Quash it they did. Prices recently rose by an annual rate of only 0.3% in August in the 18-country Euro zone, prompting ECB President Mario Draghi (who wasn't in charge back then) to drop interest rates to an [all-time low](http://online.wsj.com/articles/ecb-cuts-interest-rates-in-surprise-move-1409832304) of 0.05%. Eventually American consumers will see raises and go off and spend that extra cash. Demand will not stay depressed forever, and the Fed will one day raise interest rates. That decision, though, is more likely to be later than sooner. ```json { "@context": "https://schema.org", "@graph": [ { "@type": "BreadcrumbList", "@id": "https://money.com/jobs-federal-reserve-employment-yellen/#breadcrumb", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://money.com" }, { "@type": "ListItem", "position": 2, "name": "Economy and Politics", "item": "https://money.com/economy-and-politics/" }, { "@type": "ListItem", "position": 3, "name": "Economy", "item": "https://money.com/economy/" }, { "@type": "ListItem", "position": 4, "name": "How the Fed Will React to Today's Surprising Jobs News" } ] }, { "@type": "WebSite", "@id": "https://money.com/#website", "url": "https://money.com", "name": "Money", "publisher": { "@id": "https://money.com/#organization" } }, { "@type": "WebPage", "@id": "https://money.com/jobs-federal-reserve-employment-yellen/#webpage", "url": "https://money.com/jobs-federal-reserve-employment-yellen/", "name": "How the Fed Will React to Today's Surprising Jobs News", "isPartOf": { "@id": "https://money.com/#website" }, "datePublished": "2014-09-05T14:19:16.000Z", "mainEntity": { "@id": "https://money.com/jobs-federal-reserve-employment-yellen/" }, "inLanguage": "en-US", "breadcrumb": { "@id": "https://money.com/jobs-federal-reserve-employment-yellen/#breadcrumb" }, "dateModified": "2014-09-05T14:19:16.000Z" }, { "@type": "Article", "headline": "How the Fed Will React to Today's Surprising Jobs News", "articleSection": "Economy and Politics", "image": [ { "@type": "ImageObject", "url": "https://img.money.com/2014/09/140905_inv_jobsreport3.jpg", "width": 5274, "height": 3508, "caption": "140905_INV_JobsReport3" }, { "@type": "ImageObject", "url": "https://media.ycharts.com/charts/556c37c9fc3b8a292c99614577c00a39.png", "width": "", "height": "" }, { "@type": "ImageObject", "url": "https://img.money.com/2014/09/u-6.png", "width": 800, "height": 330 } ], "author": [ { "@type": "Person", "name": "Taylor Tepper", "url": "https://money.com/author/taylor-tepper-3/", "@id": "https://money.com/author/taylor-tepper-3/#author", "image": "https://img.money.com/2014/05/14-05-21_bio_author_tepper1.jpg?quality=85&w=190&h=190&crop=1", "email": "ttepper@moneymail.com", "sameAs": [ "https://x.com/TaylorTepper" ] } ], "publisher": "https://money.com/#organization", "datePublished": "2014-09-05T14:19:16.000Z", "description": "Yes the employers added jobs and the economy is growing. 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