Dectaper Bells Deflated Despite Jobs Report

<p>Today’s simultaneous release of the Fed’s preferred inflation indicator with the November jobs figures is a fresh reminder of the dual forward guidance at the […]</p>

Today’s simultaneous release of the Fed’s preferred inflation indicator with the November jobs figures is a fresh reminder of the dual forward guidance at the Fed’s disposal used at tempering enthusiasm of an imminent reduction in asset purchases.

December taper bells are not yet ringing despite the 2nd consecutive monthly release of +200K in non-farm payrolls, the lowest unemployment rate in exactly 5 years at 7.0% and a 15-month high in consumer sentiment.

The 7% unemployment reminds us of the infamous Bernanke June remark suggesting an end of asset purchases once the unemployment rate nears 7%. It seems such a long time ago, until the forward guidance was refined further and inflation was introduced with more detail.

Don’t forget the other part of the Fed’s Forward Guidance

Although the 7% unemployment reminds us of that Bernanke reference, suggesting an end to asset purchases, the Fed has disinflation fears to add to its dovish armoury.

The Fed’s recent ruminations have clearly indicated that no rate hikes are due as long as the unemployment is “considerably below 6.5%” and inflation “to remain below our 2% objective”.

7% unemployment may be here, but inflation is at 1.1% y/y according to the Fed’s preferred personal consumption expenditure core price index. 1.1% is the lowest since March 2011.

As long as US inflation continues to fall away from the Fed’s 2% preferred target, any recurring speculation of tapering is likely will be delinked from tightening conditions in the bond market. This explains the euro’s resilience against the US dollar in the clash of the 2 reserve currencies despite today’s strong figures, especially in the aftermath of the ECB’s passive press conference.



Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.