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Please, Fed, No Itchy Trigger Finger

October 09, 1994

Jobs, jobs, jobs. There were more of them created in September but not enough, thank goodness, to trigger an immediate interest rate increase by the Federal Reserve Board. However, the news that no rate hike is coming right away didn't dispel concern from Main Street to Wall Street that the Fed might soon boost interest levels in its sixth such anti-inflation move of 1994.

More time and data are needed to assess how well the Fed's last five increases of short-term interest rates have worked. So far, despite the job growth, wages have been slow in rising and there still appears to be some slack in the labor markets.

The nation's unemployment rate fell to its lowest in four years, dropping to 5.9% in September from 6.1% the month before. The 239,000 rise in new non-farm jobs was less than the 260,000 most economists were expecting, but it nonetheless was a good, though unspectacular, increase.

Even California, which has been slow to climb out of recession, showed improvement, with a September unemployment rate of 8.3%, down from 8.9% the month before. In Los Angeles County too unemployment dipped; the jobless rate decreased from 10.3% to 8.3%. Continuing a trend, the majority of the new jobs were created in the lower-paying service sector, rather than in higher-paying manufacturing jobs.

The Fed has been ratcheting up interest rates since February. Too much economic growth could lead to higher labor costs as businesses compete to hire and keep workers. That has not happened so far. And that's a reason for the Fed to move very, very cautiously.

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