Meagre employment gains announced on Friday divided analysts’ views of how likely it was for the Fed to begin reducing asset purchases this month. The expectation that US monetary policy will be tightened has already prompted issues in emerging markets, while US bond yields have risen.
Ben Bernanke, chairman of the Federal Reserve, will announce the board’s decision on tapering at the beginning of next week, after the Fed’s rate-setters make their decision.
Joseph LaVorgna, chief US economist at Deutsche Bank said: “The August employment report was mixed but was not soft enough in our view for the Fed to hold back from reducing the pace of monetary accommodation later this month.”
Berenberg’s Robert Wood agreed that tapering would likely begin this month, but added some caveats: “We expect the Fed to announce this month that it will start tapering in October. They will probably start small with tapering, and emphasise that they will stay flexible and willing to respond with more stimulus to any significant deterioration”.
But BNP Paribas’ chief US economist disagreed, suggesting that weaker news on the labour market is likely to reinforce a later start to tapering: “We are just following Fed instructions in this regard. They have stressed that their decisions are not on a preset course and instead will depend on incoming data, although investors seem to be of the view that the opposite is true – that they will need to taper no matter what.”