Robin Harding explains why the Federal Reserve is increasingly signaling that it is ready to begin tapering its asset purchases later this year.
“When it started QE3 last September, the Fed said it would keep buying assets until there was a ‘substantial improvement’ in the outlook for the labour market… The Fed’s projection for unemployment at the end of 2013 is down from 7.75 per cent to 7.4 per cent and falling. Average payrolls growth in the past six months has been 194,000 compared with 130,000 in the six months leading up to QE3… Although markets have been slow to acknowledge it, all this looks like a substantial improvement.”
Ryan Avent says this argument for tapering “would represent a pretty significant example of goalpost-shifting.”
“In fact it is very difficult to discern any meaningful improvement in the labour market trend. Nonfarm payrolls grew by 175,000 jobs in May. In the year to May average monthly job growth was 176,000. For all of 2012 average monthly job growth was 183,000. For all of 2011 average monthly job growth was…175,000.”
“So no, substantial improvement in the labour market cannot be the reason for tapering. Neither can inflation worries… Now the Fed may well have other reasons to want to taper its purchases. Concern over financial stability is one candidate. When Mr Bernanke speaks to the press tomorrow…his task will be to explain why those other factors justify the probable reduction in asset-purchases by late this year.”