“Markets may have over-interpreted or put a little too much spin on it, suggesting that the Fed may be ready sooner to taper,” said Josh Feinman, the global chief economist for Deutsche Asset & Wealth Management, which oversees $400 billion.
Since Bernanke’s testimony, other central bank officials, including Kansas City Fed President Esther George, have called for reducing the pace of asset purchases.
George, who votes on policy this year, said in a June 4 speech that average monthly employment growth of 200,000 over the past six months is “more than sufficient” to keep up with population growth. The Dallas Fed’s Richard Fisher, who doesn’t have a vote, has also said he favors paring purchases.
Atlanta’s Dennis Lockhart said officials are committed to record stimulus even as divergent views on when to start paring back bond purchases create a “mixed message” to investors.
“To the extent that the markets are seeing mixed messages, it simply reflects the debate that’s going on among the colleagues on the Federal Open Market Committee,” Lockhart said in a June 3 interview with Bloomberg Television. He said a reduction in the pace of purchases wouldn’t be a “major policy shift.”
While monthly job growth of 200,000 is a hurdle for tapering, it may not be sufficient. Fed officials also need to be confident that labor-market gains can be sustained, said Former Richmond Fed President J. Alfred Broaddus Jr.
“What they’re looking for is persistence in a trend, so it’s no guarantee but it raises the probability in anyone’s mind that it’s not just a blip,” he said.
Blips have bedeviled the Fed before. The four-month average for payroll growth climbed to an almost six-year high of 254,000 in March 2012, then fell by more than half to 119,000 by July. Earlier instances of the average rising above 200,000 were followed by similar reversals in 2010 and 2011.
Policy makers “take a more holistic view” that incorporates a wider range of economic gauges, according to Feinman, a former Fed senior economist who is based in New York.
Bernanke said at a March 20 press conference that before curbing purchases, the FOMC seeks “sustained improvement across a range of indicators” including payrolls, wages, claims for unemployment insurance, quit rates and economic growth.
“It’s ultimately a broader-based assessment of the labor market,” Feinman said. “Payrolls are obviously a very important part of that, but they’re not the only part. The sustainability is very important too.”