What the Jobs Report Means for the Fed

The February jobs report doesn’t change the strong likelihood that the Federal Reserve will cut monthly bond purchases by another $10 billion later this month.

The numbers were decent. The economy shook off the snow and added jobs. Fed officials won’t be concerned that the unemployment rate ticked up to 6.7 percent.

Moreover, it has become increasingly clear that tapering is on a schedule that Fed officials are not going to change unless they absolutely must.

William Dudley, president of the Federal Reserve Bank of New York, suggested Thursday that  it would take either a recession or an economic miracle to shift the Fed from its course.

“If the economy decided it was going to grow 5 percent or the economy decided that it wasn’t going to grow at all, those would be the kind of changes in the outlook that I think would warrant changing the pace of tapering,” Mr. Dudley said on a Wall Street Journal broadcast.

The Fed’s official position is that tapering is “data-dependent,” meaning economic conditions will determine the pace of the retreat. But Mr. Dudley’s comments â€" and similar, if less colorful, remarks by other Fed officials â€" suggest that the phrase is basically boilerplate.

“The Fed wants out of the asset purchase business,” Tim Duy, an economist at the University of Oregon, wrote Thursday on his Fed-watching blog. He suggested the Fed should instead describe its tapering scheduled as “outlier-dependent.”

Why is the Fed in such a hurry?

Ben S. Bernanke, then the Fed chairman, explained in December when the retreat was announced that bond-buying was intended to foster job growth and that by later this year, its work would be complete.

This doesn’t make much sense, since job growth is barely keeping pace with population growth. A more plausible explanation is that the bond purchases were an insurance policy that the Fed bought on the verge of the “fiscal cliff,” and now, with growth safely mediocre, can allow to lapse.

As for the Fed’s palpable sense of urgency, Professor Duy says the best explanation is that officials want to finish buying bonds well before they need to start raising interest rates, and that as the unemployment rate continues to fall, they’re getting antsy.

And if the data takes a turn for the worse? “Weak data,” he wrote, “particularly if it passes through to the unemployment rate, will have more of an impact on the timing and pace of interest rate hikes than tapering.”