You can’t wish away QE
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Beyond being released on a Tuesday, there wasn’t much interesting about yesterday’s mildly disappointing report that showed the economy added 148,000 jobs in September. With the debt ceiling standoff in the past (or at least on hold until February), the focus was back on the taper.
Jon Hilsenrath thinks the weak jobs number “assures that the Fed won’t act at its October 29-30 policy meeting” and “this raises the bar to action in December”, because by then we will have better information about how the shutdown affected the economy. Hilsenrath argues that the Fed is in a bind because it has tied its policies to the unemployment rate:
But the unemployment rate is behaving in peculiar ways. It is coming down as people leave the labor force and exit the tallies of those seeking employment… Because the labor force isn’t growing much, even small employment gains are bringing down the unemployment rate, even though millions of Americans remain parked on the sidelines.
Gavyn Davies looks at the statistical tools used by the Fed to gauge the strength of the jobs market and concludes that it is “continuing to improve at approximately the same pace as been seen at least since QE3 started last year”. The Fed, he says, has “now received one extra month of ho-hum data, to be followed by an October release that will be distorted by the government shutdown… This would not seem to be sufficient extra information to induce them to taper this year”.
Neil Irwin writes that the “decision not to begin slowing the pace of its bond purchases in September (the famous “no-taper”decision) is looking better and better”. Not only does the economy now have to absorb the impact of the shutdown/debt-ceiling fight, it is also dealing with falling government spending from the sequester. The result is a consensus, according to the futures market, that a taper won’t happen until spring 2014. Tim Duy roughly agrees with that timeline: job growth is flat-lining, he notes, and the only indicator that is showing improvement is the unemployment rate.
Cardiff Garcia examines the downsides of continued Fed asset-purchasing, which he says include exacerbating inequality and endangering the stability of the financial system in unknown ways. (Back in September, Brad DeLong made the case for continuing QE.) Garcia concludes by saying, “continued QE is necessary, but I still wish it weren’t”. — Ben Walsh
On to today’s links:
How Blackstone convinced a company to delay repaying its loan so it could make money on swaps – Bloomberg
Steve Cohen is taking his ball and going home, at least in terms of his London office – Reuters