Don’t Get Fooled Again. San Franscisco Fed President John WIlliams discounted the last employment report, and he was right to do so. The underlying economy continues to grind along at a slow and steady pace; it doesn’t pay to get pulled into becoming overly optimistic or pessimistic about what the latest numbers. The twelve month moving average is remarkably steady:
Summer Tapering Back On The Table. The recent data flow suggested that plans to begin tapering QE this summer with a year-end target for ending the program. And the inclusion of the “may increase or decrease” clause in the last statement seemed to imply that the recognized the shift in the tone of the data. But the Fed did not alter its economic outlook at the latest FOMC meeting. The combination suggests that the Fed would delay plans to end QE if the data faltered, that such a plan was not a sure thing. But this data suggests that their forecast was more correct than not, which then gives them room to follow the plan that appeared to be coalescing as the last meeting. In short, over the last six months, nfp growth has been 208k a month in spite of the sequester. This can certainly be interpreted as stronger and sustainable improvement.
Bottom Line: The employment report does not alter the Fed’s forecast, but provides renew confidence in that forecast. Which could bring a summer tapering of QE back into play.