After jobs report, Fed closes in on November bond taper

The Federal Reserve may move to begin reducing its support for the economy next month despite a sharp slowdown in jobs gains last month as the latest U.S. surge in COVID-19 cases crested and began to recede.

Though employers added just 194,000 jobs in September, a report from the U.S. Labor Department showed, upward revisions to prior months’ data meant that all told the economy has now regained half of the jobs deficit it faced in December, compared with pre-pandemic employment levels.

Fed Chair Jerome Powell said last month that he’d only need to see a “decent” September U.S. jobs report to be ready to begin to taper in November.

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

Others agreed. Kathy Lien, Managing Director, BK Asset Management, said the “Federal Reserve made it very clear that they don’t need a blockbuster jobs report to taper in November,” and thought the central bank “remains on track.”

There was a muted market response with the benchmark S&P 500 flat in morning trading on Friday while the dollar was down less than 0.05 per cent. Benchmark 10-year Treasuries, meanwhile, were higher at 1.6 per cent.

Some analysts said that the jobs report made the Fed’s path ahead more complicated.

“The Fed was hoping for a number large enough so that their decision to begin tapering last month would be an easy one,” said Northern Trust economist Carl Tannenbaum.

“Now, the discussions on November 2-3 may be more difficult; and the market will have to deal with some additional uncertainty.”

The Fed has been buying US$120 billion of Treasuries and housing-backed bonds each month since December to stem the economic fallout from the coronavirus pandemic, and had promised to keep doing so until there was “substantial further progress” toward its goals of 2 per cent inflation and full employment.

Since then the surge in demand as the economy reopened has pushed up prices.