FORTUNE — The Fed has been too cheery about the economy before, and Friday’s jobs report may prompt many to wonder if the central bank screwed up again.
The U.S. unemployment rate may have dropped to 6.7% in December from 7% the previous month, but this comes as the economy created sharply fewer jobs during one of the busiest shopping months of the year. The Labor Department reported that 74,000 jobs were added to the economy, that’s significantly less than the over 200,000 jobs created during the previous two months and the lowest monthly gain in three years.
Economists had expected many more jobs, and rightfully so, since the Fed last month announced that it would begin to ease the fragile economy off of its training wheels by reducing its monthly bond purchases to $75 billion from $85 billion. The stimulus program had driven down interest rates to record lows, boosting everything from car and home sales, but Fed officials moved to slow down the purchases mostly because they thought the job market was improving.
Did the Fed act too fast?
It’s hard to say at this point, given December’s report captures only one month’s worth of data, and it remains to be seen what drove the lackluster job numbers. The weather? Technical flops? We simply don’t know yet.
Beyond jobs, other aspects of the economy are improving: Household debt has fallen to levels not seen since the early 1990s, and household debt payments as a share of after-tax income are as low as they have been since the early 1980s, as Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities, recently pointed out. What’s more, equity and home values have risen, with real household net worth returning to its pre-recession peak, according to Menzie Chinn, economics professor at University of Wisconsin.
Needless to say, countless Americans aren’t benefiting from soaring home and stock prices. And Friday’s jobs report could be capturing more of an income inequality problem than purely a jobs problem. Low-end retailers had a rough holiday as Family Dollar (FDO), Sears (shld), and K-Mart reported disappointing sales.
The Fed remains cautious, however. Even though the central bank has slowed down its bond purchases, it has left room to change course if the economy suddenly falters. What’s more, the Fed is still keeping its key short-term interest rate near zero for an extended period of time — a policy it hopes will keep the costs of mortgages and other loans low.
Of course, Friday’s jobs report further complicates what the Fed may do next. Janet Yellen replaces Fed Chairman Ben Bernanke next month. She is said to be on board with slowing down the central bank’s bond purchases, but what she does or doesn’t do next will say a lot about the economy and the ultimate significance of Friday’s job report.