According to the Bureau of Labor Statistics, the United States added 151,000 jobs to the job market, helping to bring the unemployment rate down to 4.9 percent.
The figure of 151,000 was lower than expected and was a sharp decline from the number of jobs that were added in December, which was 292,000. The lower figures were pushed down due to the loss of jobs in education and transportation.
General US economic growth slowed as well, down to an annual rate of only 0.7 percent during the last quarter of 2015. Third quarter growth was measured at 2 percent in 2015.
The statistics have investors worried, reflected in a downturn in the Dow Jones average which closed lower by 215 points, or 1.3 percent. For other investors the news is a sign that the Feds will most likely not raise interest rates.
“I’m a little surprised the markets reacted somewhat negatively to it,” said Sean Lynch at the Wells Fargo Investment Institute. “It is actually a pretty good number that should be welcomed by the equity markets, it takes some of the concern the Fed moves too quickly off the table a little bit.”
US interest rates, which have been hovering near zero for about 6 years, are expected to rise as the US economy continues its slow but steady recovery. The World Bank is closely watching what the US Federal Reserve will do, and when, and is expecting when that day finally does arrive, developing economies might be in for some hard times.
The hike in interest rates could come as early as this Thursday, when the Fed winds up a policy meeting. In a report issued by the World Bank they warn that such a rise could have a modest impact on developing countries, but also adds that there is a chance that the fall-out could be worse.
The World Bank has several reasons for their concern. They believe that a rise in interest rates could interfere with capital flows into developing countries, which can lead to stifling of economic growth, which could then lead to financial instability.
Despite their warning, they also site several reasons to be optimistic. First of all, any increase in interest rates will happen gradually, allowing developing economies to cope more easily with any changes. They also point out that any changes in rates will happen within the context of a strong, growing US economy, which usually bodes well for the global economy in general.
William Dudley, president of the Federal Reserve Bank of New York, expressed his view that there should be more aid for US homeowners, emphasizing that the central bank has not yet “run out of ammunition.”
“We cannot be satisfied with the current state of the economy or the outlook for the next few years,”
said Dudley, in a speech at the U.S. Military Academy in West Point, N.Y.
Low Interest Rates
The Federal Reserve Bank has been using many of its traditional methods to help boost the sluggish economy, including maintaining record low interest rates since December 2008 so that both businesses and consumers would feel more confident about borrowing money.
Unfortunately the low interest rates have not yet had the desired effect, and the economy is still lagging in a slump. Since the interest rates cannot go below zero, this tool is no longer an option for the Feds.
This is the reason the Feds began a process called “quantitative easing” in a recently launched program called “Operation Twist.” Quantitative easing is major asset purchasing, whose goal is to bring down long-term interest rates to even lower levels, including mortgages.
Dudley said last Thursday that he believes the economy still has a long journey ahead before it arrives at full recovery, and is convinced that another boost from the Feds may be in order.
Unemployment Too High
Dudley’s forecast was for the US gross domestic product to grow only 2.75% in the coming year, which will not be enough to bring down the unemployment rate and get people back to work.
“I am deeply unhappy with the current forecast of prolonged high unemployment,” he said.