Improving Employment Data Could Usher In December Fed Tapering

doooIn the wake of Friday’s better than expected nonfarm payroll report of 203,000 with the unemployment rate falling to 7 percent, investors and economists are questioning whether the improving tide of jobs in the economy will finally trigger the Federal Reserve to slow the pace of their $85 billion monthly quantitative easing program (QE3) that has helped to drive the stock market to record highs while keeping interest rates low.

In June Fed Chairman Ben Bernanke spoke about the 7 percent unemployment rate threshold that is needed before the Federal Reserve will slow down the Fed’s pace of bond purchases.

Now that the 7 percent threshold was reached on Friday, more economists are believing that the Federal Reserve won’t surprise the market once again as it did last September when they decided to not taper and finally slow the pace of their purchases in mid-December during their next Fed meeting.

At the conclusion of the Fed’s last meeting in October, the Fed released a press statement that cited the unemployment rate remaining elevated as one of the reasons for continuing the pace of their $85 billion quantitative easing program.

“Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated” Fed members wrote.

With the unemployment no longer being elevated since the 7 percent threshold was reached on Friday while the labor force participation rate  moved up slightly to 63% from 62.8%,  it is becoming increasingly clear that U.S. labor fundamentals are intact for a quantitative easing taper that could arrive as early as mid December.

Charles Plosser, President of the Federal Reserve Bank of Philadelphia told CNBC last Friday that he believes that the economy needs to find more stability on its own instead of constantly relying on the Federal Reserve to remain accommodative.

“We should be looking for ways to withdraw support or at least slow down the increase in accommodation in order to begin to let the economy stabilize on its own.”

On Monday three other Fed members including Richmond Fed President Jeffrey Lacker, St. Louis Fed President James Bullard, and Dallas Fed President Richard Fisher will speak about the economic outlook and may offer some more insights about the Fed’s quantitative easing program.

 

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