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Mixed Jobs Report Adds Uncertainty To Fed Interest Rate Debate

RACHEL MARTIN, HOST:

There is a certain level of anticipation each month before the Labor Department issues the U.S. jobs report. Today, the world was definitely watching. Maybe it could help answer a big question - is the Federal Reserve about to raise interest rates? The U.S. gained 173,000 jobs in August - fewer than expected. But the unemployment rate fell to 5.1 percent - a mixed report. So, as NPR's Chris Arnold explains, that big question - it's still looming out there.

CHRIS ARNOLD, BYLINE: The U.S. economy is at a historic crossroads. Never before has the Federal Reserve set interest rates this low and certainly not for this long. It did that to boost the badly damaged economy. And, now we've seen the longest stretch of job growth ever - 13 million jobs over 66 straight months. So that sounds great, but wages are still stagnant and several million people of working age still don't have jobs. So the question now is, is the economy strong enough to walk on its own two feet?

LISA LYNCH: The Federal Reserve would like to get to a place where it feels more normal. To have rates this low for so long doesn't feel normal.

ARNOLD: That's Lisa Lynch, interim president of Brandeis University and a former Labor Department economist. She knows that keeping rates too low for too long can cause problems - bubbles in the housing market or the stock market. Still, for her part, Lynch thinks that the Fed should wait a little longer before scaling back the life support. So she says when the Fed meets later in September...

LYNCH: If I was sitting in that room, it would be a tough call, but I would err on the side of delaying until later in the year to ensure that there's nothing that the Federal Reserve does that scuppers the current recovery.

ARNOLD: There are some economic storm clouds, too. Worry about a slowdown in China has been sending stocks sharply lower around the world. The Dow is down about 12 percent from its peak. Randall Kroszner is a former governor of the Federal Reserve Board. We reached him today in the lobby of the Central Bank of Ireland.

RANDALL KROSZNER: One of the key debates at the Fed meeting coming up is going to be the impact of China. Is this something that is really just within China and will not have dramatic spillover effects or is this something that's going to set and train much bigger issues where they're going to have to make a decision and unlimited data in less than a couple of weeks.

ARNOLD: For his part, Kroszner thinks the U.S. economy is looking strong enough and unemployment low enough that the Fed will start to remove the life support and raise interest rates at its next meeting. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.