One Month’s Data May Not Sway the Fed

A number of economic commentators said Friday morning that the disappointing August jobs report makes it less likely the Federal Reserve would begin to pull back in September from its economic stimulus campaign.

It is surely true that these numbers add weight to the “wait” side of the scale. But that doesn’t mean the Fed will wait. Officials have sounded awfully eager to taper. Many analysts said they still expect the Fed’s policy-making committee, which meets the week after next, to conclude that the balance of considerations still favors doing less.

The Fed has established the unemployment rate as its primary measuring stick, and that rate continues to decline. Some officials continue to doubt that the asset purchases are doing much good; some officials continue to worry that the purchases are a destabilizing influence on financial markets. Perhaps most importantly, because monetary policy works slowly, officials are calibrating policy based on their expectations about what the economy will need next year and the year after that. And lately, Fed officials have sounded pretty optimistic about the next few years.

Justin Wolfers, an economist at the University of Michigan, wrote on Twitter that the latest data - particularly revisions that cut estimated job growth in June and July â€" had changed his expectations for the Fed’s September meeting.

“Never thought you would hear this said, but *revisions* mean: TAPER OFF,” Professor Wolfers wrote.

“Bernanke & co have consistentlyâ€"and wiselyâ€"said they’ll be data driven. Well, data are driving away from the taper,” tweeted Jared Bernstein, a fellow at the Center on Budget and Policy Priorities, and a contributor to this blog.

Others, however, reacted more cautiously. Diane Swonk, chief economist at Mesirow Financial in Chicago, wrote that while the data reduced the chances of tapering in September, she still regarded it as a “coin flip.”

“Should be enough, just, to trigger tapering this month,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics:

So, too, Jim O’Sullivan, chief United States economist at High Frequency Economics: “We still expect the Fed to start the tapering process at this month’s meeting, although this report will keep the debate going.

Michael Gapen, chief United States economist at Barclays Financial, saw even less reason to doubt the imminence of Septaper. “The August employment report was softer than expected, but, in our estimation, is sufficient to keep the Fed on track for a tapering in the pace of its purchases at the September meeting,” he wrote.

And Stuart Hoffman, chief economist at PNC: “The decline in household jobs has the market thinking that the F.O.M.C. might postpone the start of tapering to October or December. I still expect the F.O.M.C. will likely start to taper.”