What the Markets Want

Here’s why the market reaction was underwhelming:

The unemployment rate drop to 7.7 percent along with 236,000 new jobs renewed chatter that the Federal Reserve might call an early end to its liquidity party and what that would mean for the five-year bull market run.

So instead of a major rally, Wall Street saw tepid buying, likely held back by the guessing game of how much longer the central bank will keep printing money if the economy continues showing improvement.

The markets want a big jobs number, but without much of a fall in the headline unemployment rate.  Instead they’d like to see people coming back into the labor force.  Why?  Because the big jobs number means a growing economy, and the longer unemployment stays above 6.5% the longer the Fed refrains from further tightening.

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About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

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