Jobs Report = No Rate Increase for the Fed

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Chairwomen Janet Yellen testifying before Congress, Source: Reuters/Mary F. Calvert

Despite removing the phrase 'patient' from its press release, it is safe to say that the Federal Reserve will not be increasing its interest rates in the immediate future because of this month's under-performing jobs report. Quoting the Wall Street Journal:

The Bureau of Labor Statistics reported that the economy added 126,000 jobs in March, with the unemployment rate steady at 5.5%. This was well below consensus of 248,000. January and February were also revised down, erasing 69,000 jobs.

Inaccuracy in economic predictions is common, but recent reports have been farther off the mark than expected. Add on the growing strength of the dollar vs foreign currencies, and the US economy may be in for a bumpy ride.

Indeed, US companies are already telling investors to prepare for a sub-optimal year, as a stronger dollar means US companies have a harder time competing with foreign competition outside of the US. A large reason behind this sudden shift in exchange rates comes from outside the US, with the EU and Japan pursuing monetary policies opposite of the US' current trend. At the same time when the Federal Reserve is ready to switch back to high interest rates, the rest of the world is ready to start spending more and lower rates. As the director of Singapore's Monetary Authority put it, "Monetary policy has become interesting again." Who knows where the US dollar will end up in a world with conflicting monetary policies and stagnant economic growth?

While individuals like St. Louis Reserve Governor Bullard push for rate increases, the under performance of the job market has changed the collective sentiment towards a rate hike. Investors were willing to risk a strong dollar + rate increase, but not a strong dollar + rate increase + underperforming job market.

Before closing, understand that the current job market is actually not at all that bad. What changed was its performance level, and, combined with other factors, people are willing to wait a little longer before raising the Federal interest rate. Whether that is the right decision is entirely something else.