A fluid situation.

Photographer: Andrew Harrer/Bloomberg

The Fed and the Jobs Report

Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
Read More.
a | A

The U.S. jobs report for August released Friday didn’t provide the clarity about the state of the nation's recovery that many had eagerly anticipated. For the Federal Reserve, this mixed picture will complicate deliberations over whether to raise rates at its policy meeting on Sept. 16-17.

With 173,000 added positions, job creation in August was the slowest in 5 months and significantly undershot consensus expectations of about 220,000. But that negative economic signal was offset by several other data points in the report -- including the notable fall in the unemployment rate to 5.1 percent, the lowest level since April 2008, the upward revisions to previous months' numbers, the longer hours worked and a pickup in wage growth.

QuickTake The Fed's Countdown 

On its own, this report probably wasn't sufficiently decisive to tip the Fed's decision -- one way or the other -- about when to begin its campaign to raise interest rates for the first time in more than nine years. It didn’t provide the kind of strong data that suggests the U.S. economy could easily withstand the adverse impact of weaker global growth and financial market volatility -- a clarity that would have provided clear justification for a hike in September. But nor did the August data clearly signal that such a move would be ill-advised.

Instead, the middling snapshot adds to the uncertainty the Fed must take into account as it weighs the countervailing effects of a healing U.S. economy and the increasingly fragile global economic and financial context.

The Fed will be monitoring global financial conditions even more intensely in the weeks ahead. And it probably will have no choice but to base its next policy decision on an uncertain judgement call about the way its words and actions will influence global financial conditions. The central bank dislikes making decisions under such circumstances and wouldn't want to advertise that its hand had been tipped in such a manner.  

If markets continue to oscillate -- as they did Friday and in recent weeks -- the Fed will be forced to delay a rate hike, unless it wishes to test the robustness of the global financial system and risk damaging fragile and tentative real global economic activity.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mohamed A. El-Erian at melerian@bloomberg.net

To contact the editor responsible for this story:
Max Berley at mberley@bloomberg.net