Talk shifts away from 'tapering' and toward increased bond buying

Section:

Fed Likely to Delay Taper After Disappointing US Jobs Data

By Katherine Rushton
The Telegraph, London
Tuesday, October 22, 2013

http://www.telegraph.co.uk/finance/economics/10396946/Fed-likely-to-dela...

American employers created fewer jobs in September than forecast, raising expectations that the US Federal Reserve will keep pumping money into the world's largest economy at the same rate for several months yet.

Stock markets rose on Tuesday as investors bet that the central bank would keep on buying bonds at the rate of $85 billion a month until next year, and potentially even increase that figure to help fuel America's still-fragile economic recovery.

America added 148,000 jobs in September, according to delayed figures from the US Labour Department -- far short of analysts' forecasts of 180,000 jobs, and the 193,000 extra jobs created in August. The increase was also well below the average increase of 181,000 jobs a month which America has seen since the start of the year.

... Dispatch continues below ...



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The country's labour market is expected to grow even more slowly in the last few months of 2013, as the US absorbs the impact of the political standoff which forced the government to shut down earlier this month.

"The October payrolls number will be bad due to the government shutdown. I think this might [delay] tapering to March," said Craig Dismuke, chief economic strategist at the US analysis firm, Vining Sparks.

Joseph Trevisani, chief market strategist at WorldWideMarkets, added that "another weak payroll" could push the Fed to increase its quantitative easing programme rather than scale it back.

The Fed has said it will start weaning the US economy off its fiscal stimulus scheme only after America's employment situation shows sustained improvement.

The country's unemployment rate fell to 7.2 percent in September, the lowest since November 2008, but the central bank has made it clear that it needs to see a sustained improvement in other factors, including job creation, before tapering begins.

It had been expected to start reducing its bond buying habit in the autumn, and surprised markets last month when it decided to keep the taps on full. The employment situation is just one of a number of factors which now appear to be kicking it into the long grass.

In addition to the weak jobs data, the government shutdown is expected to have forced a delay. Standard & Poor's, the ratings agency, estimated that the episode has sucked $24bn out of the US economy, shaving around 0.6 of a percentage point of its fourth quarter growth.

Chris Williamson, an analyst at Markit, said that tapering looks unlikely to happen before March and could be kicked back even further if it turns out that the US budget standoff had a major impact on business confidence. March "is by no means assured," he said.

The Fed is likely to ally its tapering decision to jobs growth even more closely under Janet Yellen, who will replace Ben Bernanke as chairman in January next year. Ms Yellen was one of the architects of the Fed's policy of linking fiscal stimulus measures to America's jobs situation, and is expected to be very vocal about ensuring the labour market is in good health before it starts pulling back on QE.

"I think it's reinforcing Yellen's hand as the dove on the committee," said Aaron Kohli, an interest rate strategist at, BNP Paribas.

The Dow Jones Industrial Average was up 119 points, or 0.8pc, to 15,511 in mid-morning trading in New York, whilst the S&P 500 index rose 14.1 points, or 0.8pc, to 1759. In London, the FTSE 100 had risen 53.4 points, or 0.9pc, to 6,713, by mid-afternoon.

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