Fed still expected to hold off tapering until spring

Economists still forecast the Federal Reserve will delay tapering asset purchases until March even after a report last Friday showed employers added more jobs than forecast in October. Policy makerswill pare the monthly pace of bond buying to $70 billion at their March 18-19 meeting from the current pace of $85 billion, according to the median of 32 economist estimates in a Bloomberg News survey. The median forecast in an Oct. 17-18 survey of 40 economists also called for a reduction to $70 billion in March. The Federal Open Market Committee voted Oct. 30 to keep the pace unchanged, saying it needs more evidence of improvement in the economy. The subsequent jobs report probably isn't enough to convince policymakers that it's time to start tapering the quantitative-easing program, said Stephen Stanley, chief economist at Pierpont Securities. The strength of the payroll report “at least brings December back on the table, but in the end they're not going to have enough evidence to pull the trigger,” said Mr. Stanley, a former researcher at the Richmond, Va., Federal Reserve Bank. “Part of the reason they keep putting off any pullback in accommodation is that they're continually disappointed in the outlook.” Employers added 204,000 workers in October, according to the Labor Department report, compared with a median estimate of a 120,000 gain in a Bloomberg survey of economists. Revisions increased the job gains for the prior two months by a total of 60,000. The jobless rate rose to 7.3% from almost a five-year low of 7.2%, due to a statistical blip that counted as unemployed U.S. workers furloughed by the government shutdown. MARCH PREDICTION The report “makes us more comfortable with our March call,” said Laura Rosner, a U.S. economist at BNP Paribas SA and a former researcher at the New York Fed. “This is the progress we need to be seeing in order to be confident by March of next year. We'll need to see a couple more reports to make sure the strengthening in the labor market sticks.” Fourteen of 32 economists surveyed Sunday said they expect the first reduction of bond purchases in March, while nine projected January and five forecast December. The remainder said they expect tapering to begin in April or June. Economists at JPMorgan Chase & Co. moved up their estimate for the first taper to January from March or April after the jobs report, which lifted the average payrolls gain for the last three months to 202,000. 'COMFORTABLE ENOUGH' “Now it seems like the hiring is holding up even though overall economic growth is still pretty lackluster,” said Robert Mellman, a senior U.S. economist at JPMorgan. “If they just get a few more reports confirming that what they see in the latest data is actually happening they'll be comfortable enough that they can start to taper.” The economists' forecasts for a March taper contrast with investor expectations for an earlier reduction in QE. Payrolls increased at manufacturers by the most since February. Retailers added about twice as many workers as the month before, and leisure and hospitality employment was the strongest in six months. Factories added 19,000 workers in October. Industries adding factory jobs in October ranged from motor vehicles and fabricated metals to furniture and food processing. (Bloomberg News)