Employment is a key variable in the Federal Reserve's interest-rate equation. The lower the unemployment rate, the greater the chance the Fed will target higher interest rates. But there are a few mitigating variables, and a few are unique in the annals of recent history.

For one, we have low consumer price inflation. Oil and gas prices are as low as they've been in the past five years. This helps keep consumer price inflation below the Fed's target rate of 2%.(Inflation has actually been running below the Fed's target rate for a few years now.)

In addition, central banks around the world have embarked on their own version of quantitative easing. Last year, Japan's central bank announced it would swell its monetary base by $712 million. This year, the European Central Bank announced it would swell the European Union's monetary base by $1 trillion. Both Japan's central bank and the ECB are buying bonds (much like the Fed did) to accomplish their mission.

More yen and more euros has caused the U.S. dollar to appreciate relative to both currencies (and many of the world's currencies). If the Fed would raise interest rates, the dollar would become even more attractive compared to most currencies because dollar-denominated debt will offer a higher yield. (Demand for dollars would rise to buy this debt.)

Finally, the job market might not be as strong as the unemployment rate leads us to believe. In the past, the labor participation rate was consistently above 63%. The participation rate remains below that level today. It's possible an excess of potential labor remains on the sidelines, which makes the official unemployment rate appear better than it is.

Interest rates are tough to predict, but we wouldn't be surprised to see June come and go with no interest rate increase from the Fed.

Information provided by Jessica Regan.

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