US Federal Reserve (Fed) bank policymakers are meeting this week, high on the agenda will be whether to begin the end of its quantitative easing programme – a process known as tapering.
Most analysts are predicting that the Fed will not introduce tapering until next year, however the strong recent employment figures from the US, known as the non-farm payrolls (NFPs), suggest that the decision might be taken sooner rather than later.
View from the dealing floor at IG. Learn more about https://www.ig.com/uk/spread-
The NFPs are just what their name suggests. They keep track of the number of people employed in the economy outside farming, an industry excluded from the figures because of the seasonal nature of much of its hiring.
Construction and manufacturing companies are included, but some other areas of employment are missed out of the non-farm payroll figures, including people working for non-profits.
The NFP figure is important because it is seen as a key indicator for how the whole economy is doing. If more people are finding work overall, this suggests the industrial base is doing well. It also means individuals will have more money in their pockets and be able to boost other economic areas. Conversely, any fall in the non-farm payrolls figure indicates that the economy is slowing.
The latest figures, announced by the Labor Department on December 6, showed payrolls had risen by 203,000, above the predicted figure of around 180,000. At the same time, the department said the US unemployment rate had fallen to 7%, the lowest figure in five years. The markets reacted with an immediate surge, as the Dow Jones closed 1.3% up on that day.
This was a change from recent reactions, where typically the market has fallen after good job news because of fears that positive data may lead to the Fed beginning to taper its asset purchases much sooner rather than later. This time around there was no taper panic, as markets reacted to the non-farm payrolls growth itself rather than to suggestions about a cut in stimulus.
However, as previously mentioned, there are mixed views on the growing signs that the Fed may be preparing to carry out a small taper either in December or in January. Reuters reported that Richard Fisher, Dallas Federal Reserve Bank President, has said it is ‘time to taper.’
By contrast, The Financial Post quoted Tom Porcelli, US chief economist for RBC Capital Markets, as saying that the current jobs data does not make a compelling case for a taper now. He commented: ‘How will markets digest tapering if less than 18 hours later the government is reporting topline economic activity ground to a virtual halt?’
Spread bets and CFDs are leveraged products. Spread betting and CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
This information has been prepared by IG, a trading name of IG Markets Limited. The material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients