Unemployment Rate Down – Fed Action on Tap ?
- Updated: December 7, 2013
On Friday it was announced that the US unemployment rate ticked down to 7%, its lowest rate in five years. The news left investors wondering if the Federal Reserve would begin a pullback on its controversial $85 billion a month bond purchase program.
If Friday’s market reports were any indicator investors seemed to take the news in stride. The Dow Jones Industrial Average leapt 198.69 points, or 1.3%, to 16020.20, the largest rise in seven weeks.
Next week may be a different story. on Tuesday officials will go into a “blackout period” when they will stop speaking publicly about monetary policy and behind-the-scenes negotiations.
That leaves the market and investors to their own devices trying to glean bits of information on what direction or action the Fed may take, and that seldom works out well.
Be sure any talk of a pullback or tapering could have a jarring effect on stock and credit markets as it did earlier this year, but is the Fed ready to pull the plug on the bond buying program?
In September federal officials hesitated to begin scaling back the program when the job market appeared weaker than was reported earlier. In other words, the Fed didn’t make a decision based on one negative report or data. The same is true in this case, an easing of the program is not likely to occur over one positive report.
“The unemployment rate [drop] probably overstates the improvement in the economy,” Chicago Fed President Charles Evans told reporters Friday.
The government and the Fed will confirm a sustained pattern of growth before changing monetary policy. The jobless rate fell from 7.2% to 7% during the period effectively because people stopped looking for jobs and removed themselves from the ranks of people counted as unemployed.
Given that unemployment numbers are somewhat skewed there won’t be any significant easing of the policy.
“I think we’re making a lot of progress,” San Francisco Fed President John Williams said in an interview with The Wall Street Journal before the release of Friday’s data. “I just want to be confident that we are moving steadily closer to our objectives and our goals.”
Take that to mean the Fed will maintain easy-money policy for the foreseeable future. Ben Bernanke’s second term as chairman of the Federal Reserve comes to an end on January 31, 2014 and it’s not likely he’s going to be making any waves during his last 45 days in office.
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