The share of economists predicting the Federal Reserve will taper bond purchases this month doubled after a government report showed back-to-back monthly payroll gains of 200,000 or more for the first time in almost a year.
The Federal Open Market Committee will probably begin reducing $85 billion in monthly bond buying at a Dec. 17-18 meeting, according to 34 percent of economists surveyed today by Bloomberg, an increase from 17 percent in a Nov. 8 survey. In November, 53 percent predicted a tapering in March, compared with 40 percent in today’s poll of 35 economists.
The jobless rate fell to a five-year low of 7 percent last month as payrolls swelled by 203,000 after a revised 200,000 increase in October, the Labor Department said today. The November gain exceeded the 185,000 median forecast of 89 economists surveyed by Bloomberg.
“Clearly the economy is performing far better than the FOMC expected, and there’s no reason not to get started with tapering,” said James Smith, chief economist at Parsec Financial Management Inc. in Asheville, North Carolina and a former economist at the Federal Reserve Board. He predicts the Fed will reduce the pace of purchases to $65 billion in December.
Today’s payroll report puts the four-month average for payroll gains at 204,000, and the six-month average at 180,000. Chicago Fed President Charles Evans, a supporter of record stimulus who votes on policy this year, said in April he wants gains of 200,000 a month for about six months before tapering. Atlanta’s Dennis Lockhart, who doesn’t vote, said several months of gains exceeding 180,000 would make slowing appropriate.
Between Eyes
“The 200,000 number hits you right between the eyes,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “That’s a number that everyone agrees the labor market is showing good-size gains, and the progress they’re making seems to be sustainable if that marker is met, which it was.”
The FOMC has pledged to keep buying bonds until the “outlook for the labor market has improved substantially.” The central bank’s so-called quantitative easing has pushed the Fed’s balance sheet close to $4 trillion this year with purchases of Treasury and mortgage-backed securities.
The payroll and unemployment numbers “are impressive in terms of a stronger economy and the need to exit QE,” Pacific Investment Management Co.’s Bill Gross said today on Bloomberg Radio. He said the odds of a December taper are “at least 50-50 now.”
The Standard & Poor’s 500 Index advanced 1.1 percent to 1,805.09 at the close of trading in New York, extending this year’s rally to 27 percent. Ten-year Treasury yields declined 0.02 percentage point to 2.86 percent.
More Likely
The payroll report “made tapering more likely for December, but it’s not a done deal,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics Inc. in White Plains, New York. “It’s not a blockbuster number. This would be a much easier conversation if it printed 275,000.”
Economists in September predicted a taper at the FOMC meeting that month. The committee unexpectedly refrained from a reduction. Policy makers said at that meeting and again in October that they needed more evidence of lasting improvement in the economy and that fiscal policy was restraining growth.
The FOMC cited the drag from fiscal policy in its Oct. 30 statement, after a 16-day government shutdown resulted in the furloughs of as many as 800,000 federal workers. Data since then suggest the damage to the economy was limited.
A report yesterday showed third-quarter growth was faster than initially estimated as gross domestic product rose at a 3.6 percent annual rate, up from an initial estimate of 2.8 percent and the strongest since the first quarter of 2012.
‘Slower Rate’
“What else does the Fed have to see to buy at a slower rate?” said John Ryding, chief economist at RDQ Economics in New York who has worked at the Bank of England and the Federal Reserve Bank of New York. “If not now, when?’
Ryding said today’s employment report didn’t change his projection that the Fed will slow purchases to $70 billion a month at the next gathering.
‘‘If it was a close call in September, all of the things that made them tip to the side of not going have been largely cleared up,” he said.
Economists at BNP Paribas SA in New York stuck to their forecast that a reduction won’t come until the March meeting.
Policy makers probably will want to see more reports and broader measures that confirm the strength of recent reports, economists led by Julia Coronado wrote in a note today. “We think the Fed holds its fire in December and awaits more data.”
Sumber : Bloomberg
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