If you had been unemployed but found work in August, congratulations. But that worries Wall Street.

If you had been unemployed but found work in August, congratulations. But that worries Wall Street.

By the stock market’s logic, more Americans finding jobs means the Federal Reserve is that much closer to pulling back from its efforts to stimulate the economy. And less support from the Federal Reserve means the economy will have to stand on its own. That likely will lead to higher interest rates, making it more expensive to borrow money for everything from buying a home to carrying a balance on your credit card. The higher cost of cash could lead to less consumer spending. Since consumer spending is responsible for 70 percent of the economy, fewer shopping sprees would threaten the very economic strength that has led to more Americans working.

How’s that for twisted reasoning? By Wall Street’s short-term rationale, if the unemployment rate dropped in August, that could lead to a higher unemployment rate.

On Friday, the August jobs report will be released. The monthly unemployment rate has been trending lower for the better part of two years. Many complain it hasn’t been dropping fast enough. And that’s true, compared to economic recoveries of the past.

The slow pace led the Federal Reserve to take extraordinary measures, such as buying mortgage and U.S. government bonds. As the unemployment rate falls — almost regardless of why — the central bank has said it will begin to scale back. The Fed will do it in response to a stronger, more sustainable economy. And that should fortify, not frighten, Wall Street.



Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami. He is the former co-anchor and managing editor of “Nightly Business Report” on public television. Follow him on Twitter @HudsonsView.


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