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Fed Seen on Track for Faster Bond Tapering Despite Jobs Numbers

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Economy39 minutes ago (Dec 03, 2021 14:58)

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© Bloomberg. The Marriner S. Eccles Federal Reserve building in Washington, D.C.

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(Bloomberg) — Federal Reserve policy makers are likely to follow through with a faster tapering of asset purchases despite mixed readings on the labor-market recovery.

“The probability of an accelerated taper is going up,” said Thomas Costerg, senior U.S. economist at Pictet Wealth Management. “The Fed can’t ignore the unemployment rate falling to a mere 4.2%.”

Payrolls showed a weaker-than-expected increase, climbing just 210,000 last month after an upwardly revised 546,000 gain in October. But the jobless rate dropped to 4.2% as employment rose by more than a million in the report’s household survey.

Fed Chair Jerome Powell told lawmakers this week that officials should consider speeding up the taper of bond buying at their upcoming meeting Dec. 14-15 to wrap it up a few months earlier than initially planned.  

That would give the Federal Open Market Committee the option to raise rates earlier if needed to cool off surging inflation that he and colleagues warned would persist into 2022. A faster taper was backed by several Fed officials speaking Thursday.

“This keeps the tapering train on track,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York, following the release of the jobs report. “They have opened the barn door too wide to pull back now. It is likely the tapering ends in March. They are more reactive to upside surprises in inflation than to downside surprises in employment.”

The Fed may view the employment report as confirmation that the labor-market recovery is continuing in the fourth quarter after the delta variant caused a slowdown in growth during the previous three months. Powell this week cautioned that a new strain of Covid-19 was a threat to the outlook for both employment and inflation, while noting that the risks of elevated price pressures have clearly risen.

Policy makers will weigh the jobs report and a fresh read on consumer prices when they will debate speeding up the taper at their meeting. They decided in early November to wind down bond buying by $15 billion a month, which put them on track to wrap up the process around mid-2022.

“I don’t think this report really changes anything from the Fed with regards to the labor market,” Jeffrey Rosenberg, senior portfolio manager for systematic fixed income at BlackRock Inc (NYSE:BLK)., said on Bloomberg television Friday. “It’s still a strong labor market and strong labor market pricing and wages.”

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Fed Seen on Track for Faster Bond Tapering Despite Jobs Numbers

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