How Janet Yellen can cure the "two steps forward, one step back" recovery

You don't want to read too much into a single monthly jobs report, but there's no denying that the latest news from the Bureau of Labor Statistics was disappointing. Employers added a meager 126,000 jobs, and the previous two months' worth of reports got downward revisions. It's not time to panic yet, but one lesson from the weak month ought to be that talk of an early interest-rate hike from the Federal Reserve is misguided and that the palpable desire of some stakeholders to raise rates at the first sign of bad news is itself a source of trouble.

Looks like construction was a culprit in weak payrolls number. -1k jobs, after averaging +35k in previous two months.

— Neil Irwin (@Neil_Irwin) April 3, 2015

The construction sector took a notable turn for the worse, as developers apparently slowed their interest in new projects.

. @charlescwcooke more TK but manufacturing slowing due to strong dollar, wages stuck so no spending so no hiring, energy sector cuts

— Ben White (@morningmoneyben) April 3, 2015

Meanwhile, the surging value of the dollar relative to other major world currencies weighed on the manufacturing sector.

No one month is a sure thing. But the conjunction of a domestic construction slowdown with a currency-induced manufacturing slowdown is a telltale sign of tight monetary conditions. And until the Fed clarifies its messaging around the relationship between economic recovery and higher interest rates, we are going to be stuck on this see-saw where every multi-month run of good news is swiftly followed by a fallback.

Elite thirst for a rate hike essentially guarantees that any decent economic run will lead to an immediate runup in the price of the dollar and plentiful concern about medium-term interest rates. Those, in turn, will lead to a joint slowdown in manufacturing and construction. That will pull the recovery back down to earth, and push the timing of the first Fed rate hike out further.

To achieve liftoff, the Fed needs to say that it wants liftoff.

And that after a multi-year run of inflation below its 2 percent target rate, it is prepared to keep interest rates low until there is clear and compelling evidence of an inflation problem. That will let investors know that good news is simply good news, and there's no need for every two steps forward to be followed by one step back.

Will you support Vox’s explanatory journalism?

Most news outlets make their money through advertising or subscriptions. But when it comes to what we’re trying to do at Vox, there are a couple reasons that we can't rely only on ads and subscriptions to keep the lights on.

First, advertising dollars go up and down with the economy. We often only know a few months out what our advertising revenue will be, which makes it hard to plan ahead.

Second, we’re not in the subscriptions business. Vox is here to help everyone understand the complex issues shaping the world — not just the people who can afford to pay for a subscription. We believe that’s an important part of building a more equal society. We can’t do that if we have a paywall.

That’s why we also turn to you, our readers, to help us keep Vox free. If you also believe that everyone deserves access to trusted high-quality information, will you make a gift to Vox today?

One-Time Monthly Annual

$5/month

$10/month

$25/month

$50/month

Other

$

Yes, I'll give $5/month

Yes, I'll give $5/month

We accept credit card, Apple Pay, and Google Pay. You can also contribute via