Posted by greatinvestor > 2013-09-06 09:32 | Report Abuse

Bernanke Fed's September Taper Call Closer As Job Market Improves: QE To Be Cut To $70B Despite being the dominant force in the markets today, the Federal Reserve seems to have moved into the background, as markets digested the possibility of a reduction in quantitative easing beginning in September and focused on geopolitics, particularly on military action in Syria. Recent data gives further support to the view that Chairman Ben Bernanke could announce tapering in the upcoming FOMC meeting, with a decent ADP employment report and continued momentum on the jobless claims front. The Fed would thus cut asset purchases by about $15 billion to $70 billion, particularly if Friday’s non-farm payrolls remain consistent with the recent trend, and come in around the consensus number of about 180,000. Market freak outs about the Fed beginning to leave the market no longer dominate trader chatter. Yet, with the FOMC meeting around the corner (scheduled for September 17 and 18 with an ensuing press conference by the Chairman), it is slowly coming back to the fore. Indeed economic data has supported Fed Chairman Ben Bernanke’s projection that the unemployment rate will fall below 7% by mid-2014, indicating the once-feared taper should come before the end of the year. On Thursday, jobless claims fell to 323,000 from a downwardly revised 332,000, beating consensus breaking the 330,000 mark for the first time since before the financial crisis. “Claims continue to signal no let-up from the recent pace in employment growth, which has been strong enough to keep unemployment trending down,” said HFE’s chief economist, Jim O’Sullivan, who added, “if anything, claims are suggesting further acceleration.” The four-week average in jobless claims ticked down to 329,000, from 332,000 previously. The Fed has kept a watchful eye over the labor market, pointing to strength in jobs as one of the main reasons to begin to ease on their monetary easing. A few months ago, Chairman Ben Bernanke spooked investors telling them on repeated occasions the Fed was ready to reduce its asset purchases as long as economic projections remained on track. The employment situation seems to have done exactly: job growth was averaged 192,000 this year, according to the Bureau of Labor Statistics, and the unemployment rate has fallen to 7.4%. This “cumulative progress” in labor markets, according to Nomura, is consistent with a September taper as the jobless rate works its way to 7% by the middle of next year. The ADP report added a little more oomph to the argument, showing the private sector added 176,000 jobs in August, just below the 184,000 consensus.