By Ann Saphir (Reuters) – Federal Reserve policymakers look likely to accelerate the winddown of their bond-buying program when they meet later this month, despite November job gains that came in short of expectations, as they move to take out insurance in case inflation does not recede next year as expected. U.S. employers added 210,000 […]
Faster Fed taper, earlier rate hikes in sight despite slower job gains
By Ann Saphir
(Reuters) – Federal Reserve policymakers look likely to accelerate the winddown of their bond-buying program when they meet later this month, despite November job gains that came in short of expectations, as they move to take out insurance in case inflation does not recede next year as expected.
U.S. employers added 210,000 jobs last month, a U.S. Labor Department report showed Friday, less than half of what economists had expected. But average hourly earnings over the past 12 months rose 4.8%, and the unemployment rate dropped to 4.2%.
Shortly after the report was released St. Louis Fed President James Bullard intensified his call for faster action by the Fed’s policy-setting panel, the Federal Open Market Committee, and said more of his colleagues had become comfortable with the idea of speeding up the bond-buying taper.
“The danger now is that we get too much inflation,” Bullard said. “It’s time for the FOMC to react at upcoming meetings.”
The Fed has kept interest rates near zero since March 2020. Last month, citing substantial progress in the labor market and higher-than-expected inflation, the Fed began reducing its $120 billion in bond purchases each month on a pace that would end them entirely by June 2022.
But, with inflation running at more than twice the Fed’s 2% target and risks rising that it won’t recede next year as quickly as policymakers would like, Fed Chair Jerome Powell said this week that at the Fed’s next policy meeting on Dec. 14-15 they would consider speeding up the taper by a few months.
“This doesn’t do anything to derail the Fed from a faster taper,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, calling the jobs report “solid.”
“I’m not sure there’s anything here that would change their mind.”
LIFTOFF BEFORE JUNE?
Bullard has for months been on the hawkish end of the Fed’s policy spectrum, but in the last few weeks more of his colleagues have joined him in wanting at least the option of raising rates earlier than June.
Fed policymakers generally agree that a liftoff from near-zero rates should only start after the Fed has stopped buying bonds.
Friday’s labor report showed the largest increase in labor force participation in 13 months, and women entering the labor force at the fastest rate since March.
“We think the Fed will view the economy as near full employment,” Barclays economists wrote in a note, adding that not only do they expect the central bank to speed up its taper in December, but also to begin raising rates in March.
Economists at Goldman Sachs noted following the report that the survey response rate that feeds into the payrolls number was the lowest for a November in 13 years. Several months this year have seen upward revisions in later readings, owing in part to the difficulty of data collection during the pandemic.
Bullard echoed that in comments to reporters, adding he expecting upward revisions to the payrolls number.
Interest-rate futures traders are pricing in a rate increase in May, with two more by the end of 2022. That’s more than the two rate increases Bullard said he has penciled in, though he said if inflation doesn’t fall as he expects, he would want the option to do more.
(Reporting by Ann Saphir, Sinead Carew, Lucia Mutikani and Lindsay Dunsmuir; Editing by Chizu Nomiyama and Andrea Ricci)