Jobs Report Bolsters Yellen’s Caution on Raising Rates

Investors betting the Federal Reserve will accelerate its timetable for an interest-rate increase may have to think again after today’s jobs report.

Fed Chair Janet Yellen and colleagues urging patience in tightening policy got a boost from the surprisingly weak 142,000 increase in August payrolls reported by the Labor Department, economists said.

“It definitely takes the pressure off of Yellen,” Aneta Markowska, chief U.S. economist at Societe Generale SA in New York, said in a telephone interview. “It buys the markets and the dovish camp more time.”

The payrolls gain, which was smaller than the most pessimistic forecast in a Bloomberg survey of economists, supports Yellen’s view that “underutilization of labor resources still remains significant” even after the jobless rate fell faster than Fed officials expected. Today’s report showed unemployment fell again, to 6.1 percent.

Yields on benchmark 10-year notes dropped from an almost one-month high and stocks fluctuated after the report.

The 10-year note yield fell three basis points, or 0.03 percentage point, to 2.42 percent at 11:43 a.m. New York time, according to Bloomberg Bond Trader data. The Standard & Poor’s 500 Index was little changed at 1,996.73.

The Federal Open Market Committee in July repeated that the benchmark interest rate is likely to stay low for a “considerable time” after the central bank completes its bond-purchase program, which is set to end late this year.

Fed’s Forecast

Fed officials in June forecast that the benchmark rate would rise sometime next year. It has been held near zero since December 2008 as the Fed battled the deepest recession since the Great Depression and later sought to keep the recovery going.

Speculation that the Fed might move forward its timetable for a rate increase intensified after the release of minutes of the July meeting on Aug. 20. The minutes showed that some participants were “increasingly uncomfortable” with the Fed’s forward guidance. The FOMC is scheduled to meet next on Sept. 16 and 17.

For the Fed, the jobs report “takes their feet off the fire to make big changes to the September FOMC statement,” Michael Feroli, chief U.S. economist at JPMorgan Chase & CO. in New York, wrote in a note to clients. “Some variant of ‘considerable time’ is likely to remain in the committee’s description of interest-rate guidance.”

Some analysts cautioned against reading too much into the latest data. August jobs numbers have a tendency to come in low initially, only to show stronger gains as the figures are adjusted over the following months. After revisions, payrolls were boosted by 55,000 on average for the month of August from 2010 through 2013, according to Bloomberg calculations.

“We are skeptical today’s payroll growth represents the start of a weaker trend,” Neil Dutta, head of economics at Renaissance Macro Research LLC in New York, wrote today in a note to clients.

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