The July jobs report was better than expected and suggests that the economy could soon be able to run without the Federal Reserve’s reduced support.
The U.S. Bureau of Labor Statistics released data Friday morning showing that there were 943,000 nonfarm payroll gains in the last month. The unemployment rate fell to 5.4%.
The economy is slowly returning to pre-pandemic levels. Employment levels fell by as much 22.4 million during the worst economic downturn. The economy seemed to have recovered almost 17 million of the jobs lost by July 2021.
The central bank will continue to pursue its easy money policies even though millions are still unemployed. However, the strong July numbers could give policymakers cause to reduce its asset purchasing program later in the year.
“The timing of this report will depend on the August employment report. This could soften due to the spread Delta variant. But tapering is now pretty much baked in the cake by year end,” stated Grant Thornton LLP’s Chief Economic Officer Diane Swonk.
As part of its quantitative ease program, the Fed has been taking in $120 billion per month in U.S. Treasuries as well as agency mortgage-backed Securities.
Fed Chairman Jerome Powell suggested last Wednesday that a slowing of the pace of purchases might begin in the near future, but Fed watchers had no other clues as to when.
Taper expected in November
The Fed’s target of 2% inflation is already exceedingly high. As the labor market recovers, the central bank continues to balance when to tighten its policy.
Christopher Waller, a top Fed official, said to CNBC earlier this week that he could envision the Fed announcing an immediate taper at its September meeting — if the August and July reports show 800,000.00 to 1,000,000 job gains.
Powell stated last week that there was still “some ground to cover”, before the Federal Open Market Committee’s taper standards can be met.
BofA Securities Senior U.S. Joe Song, an economist at BofA Securities Senior U.S., said Friday that the Fed may be more patient in its approach to reducing monetary support due to the rapid spread and popularity of the Delta variant.
Song stated that Powell and other FOMC members would like to see multiple employment prints well above the trend in order to make any significant changes in the policy path.
Fed watchers JPMorgan and Evercore ISI believe that the Fed will announce a taper at two policy meetings starting now (at the conclusion the Fed’s Nov. 2-3 meeting).
Krishna Guha, Evercore ISI’s CEO, wrote that “We tweaked our base case so Fed — still deciding November — begins the tapering process either immediately or in December instead of waiting until January.”