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Is the economy strong enough for an interest rate raise?

Though unemployment fell to its best place since early 2008, the number of jobs created in August was quite modest, falling below expectations. Combined with the volatility of the market and worries over sluggish wage growth, how will the Federal Reserve take the latest labor report into consideration as they weigh raising interest rates? Diane Swonk of Mesirow Financial joins Hari Sreenivasan.

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  • JUDY WOODRUFF:

    As the Federal Reserve gets set to make a decision in a few weeks about whether to raise interest rates, today's monthly U.S. jobs report added yet more mixed signals.

    The number of new jobs was quite modest and below expectations. And yet it comes amid some better data, and job growth over the summer was steady overall.

    Hari Sreenivasan in our New York studio gets some analysis.

  • HARI SREENIVASAN:

    Between the latest jobs numbers, the volatility of the markets and worries over sluggish wage growth, there are questions over just how strong, or not, the economy is performing, and what it means for most households.

    Diane Swonk studies the jobs data and joins me now. She's with Mesirow Financial in Chicago.

    So, this is only one piece of data heading into next week's Fed meeting, but it's the last piece of data. And, frankly, looking at it, it would have been maybe different three weeks ago, before all of this churn in the market.

  • DIANE SWONK, Mesirow Financial:

    Well, you know, and the Fed is data-dependent, they say, so every piece gets sort of minced to the ninth degree.

    And we know that August data is notoriously bad. It tends to be, the first time they announce it, they don't get the full count and they tend to underestimate it by quite a bit. So, we knew it was going to come in low and it looks like we have got that bias again this time, so it came in lower.

    But, for many on the Fed, it's enough. They sort of think the labor market is doing as good as it can do. I think that's unfortunate, in general, statement about the U.S. economy, because it's better than it was, but this is not good enough for a lot of people in the U.S. economy.

    But the uncertainty is — this piece of data — it's not just this data. It's, what are we doing going forward? So all this market volatility, concerns about growth abroad, how that will affect us, there is no such thing as Las Vegas in the world anymore, the global economy. Nothing that happens there stays there. It goes everywhere. And so we worry about it when things abroad goes wrong because it can hit us on our shores.

    And so all that uncertainty, it's not just today's data. It's also the Fed has to consider, what are the risks going forward? And they're clearly more to the downside than they were just a month ago. How much? And that's why we're still splitting hairs over deciding, is the Fed going to go or not go, just a few weeks away, and an historic liftoff, the first rate hike in nearly a decade?

  • HARI SREENIVASAN:

    Right. So, this is a balancing act between shaking the confidence out of some of the — stock market, other markets, and then on the other hand maybe overheating the economy.

  • DIANE SWONK:

    Right.

    I think there is a lot of heated debate about a pretty tepid economy. And the Fed's goal is not to take the punchbowl away from the economy, but maybe put a three-drink limit on it.

    (LAUGHTER)

  • DIANE SWONK:

    They still want to keep it going a bit. They'd still like to get us dancing on the dance floor, more people out there a little bit.

    And so this is — I think that's also important for people to remember. When the history books are written on this period in time, it will not be when the Fed made the first rate hike and how big it was, because we know it's going to be small. That could be in September. It could be December. It could even be in March.

    In the history books, that six-month window will not make a difference. What's going to make the difference is how fast does the Fed raise rates thereafter? And we're talking about a glacial pace. And that's really important, because glaciers sort of sneak up on you, but they are not going to do anything to cool the economy real quickly.

  • HARI SREENIVASAN:

    And 5.1 percent, that is very close to what economists call full employment.

  • DIANE SWONK:

    Yes, I have my — I say that 5.1 percent doesn't feel like it did in the past, does it?

  • HARI SREENIVASAN:

    Right.

  • DIANE SWONK:

    We don't have these wages accelerating. Wages are still very stagnant out there.

    And we should be seeing more wage growth, not that you need to have wage growth before — it is an aftereffect of a tight labor market, but I look around and, gosh, I remember much better labor markets than this. This just doesn't have the same feel and taste of a labor market that really is overheating.

    So I think there is a lot — there's going to be — there's a lot of data and there's a lot of data points. And what's interesting is, we're caught in the weeds. Stepping back, looking at the overall picture, the Fed is having this heated debate about a still tepid economy, but it may be as good as they can do for it and it may be appropriate for them to raise rates.

    The timing, we're splitting hairs, but it's still not a great economy. This economy still needs some catchup to it. And I think the Fed understands that very well. There's only so much they can do. They're not — if they were a magician, they would have already waved their magic wand and lifted us all out of this.

  • HARI SREENIVASAN:

    Diane Swonk of Mesirow Financial, thanks so much for joining us.

  • DIANE SWONK:

    Thank you.

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