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Nothing’s Gonna Stand In Fed’s Way

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Nothing’s Gonna Stand In Fed’s Way

ByJin Dao Tai

 OCT 27, 2021

Nothing’s Gonna Stand In Fed’s Way


During the previous monetary policy meeting in September, the Federal Reserve sent out a hawkish tone, acknowledging that further progress was made towards the maximum employment and price stability goals and that a quantitative easing (QE) tapering “may soon be warranted”. With the sharp rise in prices over the past few months, the Fed committee members pretty much agree that the “substantial further progress” test has been met for inflation. On the other hand, many of the committee members except Fed Chairman Powell felt that the test has also been met from the employment side of things. Nonetheless, Powell mentioned that he does not need the upcoming jobs report to be stellar to convince him that employment has cleared the test.

Poor job figure left the market wondering if a tapering in November is possible.

In September, hiring took a strong hit led by a strong decline in government jobs. The U.S. Bureau of Labor Statistics (BLS) reported a disappointing 194,000 jobs being created as opposed to the expectation of 490,000 jobs. The loss in government jobs was driven by a strong decline in the local government education category while the gain in overall jobs was once again led by the leisure and hospitality sector. Fortunately, there was an upward revision to the job figures for August and July, adding a total of 169,000 jobs. At the moment, the job market is still 5.06 million jobs below the pre-pandemic level.

Although unemployment rate has declined to a lower-than-expected level of 4.8%, the labour participation rate inched lower to 61.6. With the participation rate remaining stagnated and below the pre-pandemic level of 63, this may imply that many people are not returning to the workforce for an extended period of time. As a result of this labour shortage, employers are resorting to increasing wages in order to attract more workers as can be seen from the continued rise in average hourly earnings.

This jobs report has led to the questioning of whether the results reported are good enough to fulfill the “substantial further progress” test for employment, which in turn will determine if a QE tapering will be announced during the November 4th’s meeting.

Powell gives the green light.

The question of whether the recent jobs report will derail the Fed’s taper announcement has pretty much been answered by Powell during his speech last Friday when he said that he does “think it’s time to taper”. Furthermore, he also mentioned that the central bank is on track to ending QE by mid-2022. However, on the subject of interest rate hike, he does not think it is time to do so yet.

On inflation matters, Powell highlighted that supply bottlenecks remains the main driver of the recent rise in prices and that “the risks are clearly now to longer and more persistent bottlenecks, and thus to higher inflation”. Hence, there seems to be a shift in Powell’s view that inflation is “transitory”. Therefore, with the strong inflation pressures and the satisfactory jobs figures, we are likely going to hear from the Fed on QE tapering during the next monetary policy meeting on 4 November.

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