November? December? Fed’s “slim” timeline tied to shaky employment data

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FILE PHOTO: The Federal Reserve Building is set against the blue sky in Washington, USA on May 1, 2020. Reuters / Kevin Lamarck / FILE PHOTO

September 17, 2021

by Howard Schneider

WASHINGTON (Reuters) – The Federal Reserve Board of Governors faces a potentially stagnant or rapidly expanding labor market, adding to the real changes in US job growth next September. As this is expected to open the door to lower monthly bond purchases.

The Federal Reserve Board of Governors, including Chairman Jerome Powell, has taken the US central bank’s monthly bond purchases as a first step toward ending the crisis-era policies implemented in the spring of 2020, when the coronavirus pandemic was raging. . Powelling said it could reduce $120 billion.

However, after 235,000 jobs unexpectedly weakened in August, officials remained open to options, and a November 2-3 policy meeting if employment increased and COVID-19 risk eased. You’ll want to be prepared to reduce your bond purchases soon. You can also delay the “taper” if the virus hinders recovery.

A professor at the Yale School of Management, a former Federal Reserve Board official, and a central bank responding to the financial crisis and recession of 2007–2009.

“They will need more data,” English said. “And if it’s hopeless, they’ll probably wait… It’s a difficult statement. They want to open the door, but they don’t want to commit. That’s their mission.”

Dilemma bets in the next US employment report, which will be announced on October 8. This data may indicate whether the coronavirus delta variant is having a deeper impact than federal officials expected in early summer. He said the economy seems to be moving away from the pandemic.

Graphics: crawl slow until “enough”:

“Very forward progress”

The Federal Reserve Board of Governors will hold its next policy meeting on Tuesday and Wednesday. This session will include the announcement of new economic forecasts and a new reading on officials’ interest rate forecasts. Forecasts are close to 1 million job growth in both June and July before the August drop-off, unexpectedly strong inflation, and a surge in COVID-19 infections and deaths reversed the virus wave last summer. Contains volatile summer data, which includes.

At the policy meeting in late July, federal officials were approaching a taper decision to buy the bonds, but some data has since been pushed in the opposite direction. New York Fed President John Williams and Atlanta Fed Chairman Raphael Boustik are both voting members of the Central Bank’s Federal Open Market Committee (FOMC), which wants more information before making a final decision. Growth.

The Fed said in December that it would not change bond purchases until “substantial progress has been made” to regain the 10 million jobs lost at the time by the pandemic.

At the time, policies tied to pandemic unemployment levels made sense, and the country was concerned about a new recession and a lack of widespread distribution of the COVID-19 vaccine. Today, policymakers are shaped by various forces, such as the availability of childcare in large states such as Florida and Texas, and opposition to the obligation to wear masks, as well as the impact on employment and people’s work capacity. Depends on the successful revival of the work.

As of August, the economy has recovered less than half of those 10 million unemployed. Other relevant statistics, such as the ratio of employment to the population, were seen before policymakers such as Richmond Fed Chairman Thomas Barkin, who is also a polling member of the FOMC this year, concluded that the job market as a whole has been restored. It’s not as good as you’d like. Begin reducing bond purchases.

Some Fed officials, including Governor Christopher Waller, argue that the purchases are of little use to current employment and pose risk if they fuel homes and other assets while keeping long-term interest rates low. , I want to taper sooner, not later. foam

Inflation has also been higher than expected in the past few months, so other officials say bond purchases should end early next year. However, as many other Fed officials have predicted, the recent weak inflation could undermine the urgency to act fast.

Graphics: Downside complicates “surprise” Fed’s actions:

How long is 2013?

Tim Dew, chief US economist and professor of economics at SGH Macro Advisors, said this type of policy disruption opened up options for the Fed in the coming weeks as economic data changed from frightening to lively. That means you want to leave it alone. at the University of Oregon.

“They’ll do something like 2013. Explain how to mitigate in future meetings,” Du said.

In 2013, the Fed announced its words at its September meeting and began a shift toward an eventual lack of “quantitative easing” in the aftermath of the financial crisis.

At that meeting, the Fed reported that the economy showed “inherent strength” despite a slowdown in federal spending. However, the impact of the “fiscal contraction” remained uncertain, so “the Commission decided to await further evidence that progress would continue before adjusting the pace of purchases.”

I reiterated that statement at the next meeting before actually reducing bond purchases in December 2013.

This time, it is the delta version that creates the risk.

Many economists have exaggerated the focus on the diluted debate, claiming that there is little difference between a month or two when the Fed starts or ends.

But it sent a strong signal that US monetary policy was closing the book on the crisis, taking the next step in the debate about when inflation needs to raise the Fed’s benchmark overnight rate (federal funds rate). will focus. The current level is almost zero.

This is a call for federal officials to understand correctly.

David Wilcox, a former Fed research director and senior fellow at the Peterson Institute for International Economics, said: “The important thing is that how they read inflation tea leaves can be argued about. Want to raise (federal funds rate) interest rate, they should work out a bond purchase program in a time bound manner. How worried? So this decision is more than just interest.”

(Reporting by Howard Schneider, edited by Dan Burns and Paul Shimao)

November? December? Fed’s “slim” timeline tied to shaky employment data

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