Fed closes in on November bond taper after jobs report

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(Businesshala) – The Federal Reserve could begin to ease its support for the economy next month, despite a sharp slowdown in job gains last month as the latest US surge in COVID-19 cases crested and began to retreat.

FILE PHOTO: A Panda Express restaurant displays a “Now Hiring” sign in Tampa, Florida, US, June 1, 2021. Businesshala/Octavio Jones/File photo

Although employers added just 194,000 jobs in September, a US Department of Labor report showed, an upward revision in figures from previous months meant that all told the economy had now recovered compared to pre-pandemic employment levels. In December, it faced half the job loss. .

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Fed Chairman Jerome Powell said last month that he would only need to see a “decent” September US jobs report to be ready to start in November.

“I think it barely overcomes Powell’s ‘civilized’ hurdle,” said Bank of the West economist Scott Anderson. “November’s taper announcement is still the most likely path forward for the Fed.”

Still, he and others said, it’s not a lock.

“The Fed was expecting large enough numbers to ease their decision to start tapering last month,” said Northern Trust economist Carl Tannenbaum. “Now, the November 2-3 discussion may be more difficult; And the market will have to deal with some additional uncertainty.

The Fed has been buying $120 billion of Treasury and housing-backed bonds each month since December to stem the economic fallout from the coronavirus pandemic, and promises to do so until “considerable progress” is made toward its targets of 2% inflation. did. and full employment.

A surge in demand from the economy’s reopening since then has pushed prices up. Fed forecasts and others suggest ongoing supply constraints are set to keep inflation above 2% through the end of the year and through 2022.

On the labor market front, the shutdown of the labor market has caused deeper holes in the labor market. In December, the US economy was supporting about 10 million fewer jobs than it was pre-pandemic; As of September, Friday’s report shows, the gap was around 4.97 million.

(Graphic: The deep pandemic hole of the US labor market,)

Once policymakers begin to phase out their bond-buying program, it is unclear how quickly policymakers can move to raise interest rates from their current-zero levels. Traders in interest rate futures are betting that they will do so by the end of 2022.

Fed policymakers have said they will not until the economy reaches full employment, and inflation is on track to stay above 2% for some time.

A broader question is whether COVID-19 cases are declining as in recent weeks, or whether a resurgence in winter has left consumers quite scared and misjudged the recovery.

Another is the trajectory of inflation, which Fed policymakers expect to ease next year, but if not, could force the central bank to make the uncomfortable decision of raising interest rates before the labor market has fully recovered. Is.

And a third is the extent to which the labor market can make up for lost ground.

Fed policymakers in September had expected unemployment to fall to 4.8% by the end of this year, a benchmark that Friday’s report showed it had already reached last month.

Given the volatility in the number of workers participating in the labor market, ‘it is not clear if this is going to stick’, wrote Jefferies economist Anita Markoska in a note.

Reporting by Ann Safir; Editing by Chizu Nomiyama

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