Business, Economics and Jobs

Will the Fed signal tapering this month?



The seal of the Federal Reserve Board of Governors.



Is Friday’s better-than-expected jobs report good enough to prompt the Federal Reserve to signal the rolling back of its bond-buying program this month?

The answer to that $85-billion-a-month question depends on who you ask. 

For Capital Economics, it is a resounding yes. 

The data "gives the Fed all the evidence it needs to begin tapering its purchases at the next FOMC meeting later this month," the London-based research house said in a report. 

"The Fed got cold feet in September, when it learned that employment growth had dipped below 100,000 in July. Over the past four months, however, the average monthly gain has been over 200,000."

John Lonski, chief capital markets economist at Moody’s Analytics, said he expected the Federal Open Market Committee to “strongly hint” at its Dec. 17-18 meeting that a tapering announcement was in the offing for January.

But if the market’s exuberant response to the jobs data continued over the next several days, “that could give the Fed confidence to move at this meeting,” he told MarketWatch.

US stocks rose for the first time in six days, bonds fell and the dollar strengthened against major currencies after Labor Department stats showed American employers added 203,000 jobs in November and the unemployment rate fell to a five-year low of 7 percent.

Analysts had expected payrolls to increase by a more modest 180,000 and for the jobless rate to fall to 7.2 percent.  

Some of the gains in financial markets were shortlived, which Capital Economics said suggested investors had already "largely priced in" the prospect of Fed tapering. 

More from GlobalPost: US jobless rate hits a five-year low

But despite the positive reading, some analysts played down the chances of the Fed pulling the taper trigger just yet. While Friday’s jobs report was good, they said, it wasn’t good enough for policymakers to start winding back asset purchases soon.

“Today’s non-farm payrolls confirm the relatively optimistic picture and the fall of the unemployment rate is certainly good news for policymakers,” Annalisa Piazza at Newedge Strategy told the Financial Times.

“That said, we would not expect the Federal Open Market Committee to start its tapering on the basis of today’s labor market report. More evidence out in the next 10 days or so will help to define a better overall economic picture.”

Jim O’Sullivan of High Frequency Economics said the Fed was more likely to give markets the heads up that tapering was imminent.  

“The odds are that they basically almost pre-announce at the December meeting and say if numbers continue to be strong a tapering will start very soon,” O’Sullivan said. 

Still, the market’s reaction to the data suggests investors are at least “getting increasingly comfortable with a taper scenario,” Jim Russell, a senior equity strategist for US Bank Wealth Management, told Bloomberg.

For months positive economic data has carried a sting in the tail for financial markets because it shortens the odds of the Fed reducing its monthly bond purchases, which are meant to lower long-term interest rates and boost economic growth.

This week, for example, a series of positive data on the labor market and manufacturing sector was blamed for causing a five-session losing streak on Wall Street.

"Good news is good news today," Katie Nixon, chief investment officer at Northern Trust Wealth Management, told the Wall Street Journal. 

"The market is really absorbing this quite well."