Real Time Economics blog asks: “What does this mean for the Federal Reserve’s $85 billion-per-month bond-buying program?”
And answers:
- The report muddies the outlook for what the Fed will do at its next policy meeting (September 17 and 18)
- Says the report wasn’t overwhelmingly good or bad
- Makes the next report (the August report, due September 6) more crucial for the Fed.
The article says “Mr. Bernanke in June (said) that if the Fed’s economic forecast plays out as expected, the jobless rate would probably be around 7% when the Fed ended the bond-buying program altogether. Mr. Bernanke said the Fed thinks could happen by mid-2014. So by this measure, the labor market appears to be on the track the Fed expects.”
Note the “if the Fed’s economic forecast plays out as expected”; the Fed’s economic forecasts are thought to be a good way on the optimistic side and seem unlikely to be met (I posted about this in June, here: When you hear that the Federal Reserve GDP forecasts are optimistic, what does that mean? and here’s more: Federal Reserve’s forecasts looking very optimistic)
The article also notes that its not only this lacklustre jobs report that could influence Fed decision-making:
- Mr. Bernanke has voiced concern that recent increases in mortgage rates could harm the housing recovery and suggested that any perceived damage to the housing market could cause the Fed to hold off on reducing QE.
There’s also the ‘shoot yourself in the foot’ risk from Congress:
- “Congress is back to budget brinksmanship, with the threat of a possible government shutdown in the fall and another market-rattling fight over the federal government’s borrowing limit looming ever-larger.”