It’s that time of the month again: Wall Street is anxiously awaiting the monthly employment figures – less because of its interest in job creation and more because of what the numbers will mean for the Federal Reserve’s unconventional stimulus policies.
As one money manager put it all too candidly: “Bad news is good news in this market lately because it keeps the Fed buying bonds and interest rates low.”
Given that the Fed is the closest thing the world has to a global central bank, what happens at the Federal Open Market Committee doesn’t often stay in the Federal Open Market Committee. Indeed, emerging markets have become increasingly volatile since Fed Chairman Ben Bernanke said policymakers might curtail the pace of asset buys in coming months.
Everyone is focused on whether there has been substantial improvement in the labor market, the Fed’s stated pre-condition for abandoning QE3. However, something else has been happening to the other side of the central bank’s mandate: inflation has been falling steadily. Over the past 12 months, the Fed’s preferred inflation measure has slowed to just 0.7 percent, the smallest gain since October 2009 and well below the Fed’s 2 percent target.
Pablo Goldberg, global head of emerging markets research at HSBC securities, says this is really the primary factor economists should be watching: