Federal Reserve & Interest Rates

There was a bit of a scare when the statistics for August 2007 came in from the Bureau of Labor Statistics. A decline of 4,000 jobs was reported, and it made the Federal Reserve a little nervous at the numbers.

It turns out that the employment outlook is a lot more positive than originally thought. As of September, revisions are being made due to a significant increase in jobs. Local education, which is typically in recess for the summer, caused the alarm that the job market took a sharp downturn. Now, with the teachers, school secretaries and guidance counselors all back to work, the employment rate is looking up again.

Corrections to the August statistics are now showing a revised 89,000 jobs, as opposed to the 4,000 lost jobs originally reported in August. Non-farm payroll statistics for the month of September showed an increase of over 100,000 new jobs.

So what does this mean for the Fed?

The federal funds rate and the discount rate where lowered recently, and the unemployment reports from August had some impact on that decision. Was it the right thing to do? Some economists say that if the report did not show such a sharp downturn in employment, the Federal Open Market Committee would have held off on the rate cuts.

Investors and economists are now skeptical about additional rate cuts at the next Fed meeting that the end of this month. Thoughts were originally that there were more rate reductions on the way. With this new positive employment data, it is more than likely that the Federal Open Market Committee will hold off on additional cuts until more time has passed. Economic performance may not be taking as much of a downward turn as it was originally thought.

There is still a great deal of economic uncertainty that the Fed has to deal with. Unemployment is still a problematic issue in a few different states that have a lower than average employment rate. Michigan has an all time high unemployment rate of 7.4% and Alaska’s rate is right behind it at 6.3%. Inflation has not stabilized as of yet, and the value of the dollar has continued to show signs of weakening in Foreign Exchange.

While the news of overall employment is looking better than it did last month, the country still has plenty of economic uncertainty.