July 5 - Expectations grow that the Federal Reserve will begin slowing bond purchases as early as September after June job growth is stronger than forecast. Conway G. Gittens reports.
The economy is heading in the direction the Federal Reserve hoped it would. Employment gains added up to a better-than-expected 195,000 in June - and upward revisions to the two months before bring the three-month average upwards of 196,000. A report like this gives the Fed more reason to start pumping less than 85 billion dollars a month into the economy. Julia Coronado of BNP Paribas was thinking the Fed would wait until December but now: SOUNDBITE: JULIA CORONADO, CHIEF ECONOMIST - NORTH AMERICA, BNP PARIBAS (ENGLISH) SAYING: "Given the bias to tapering, we now think that they may go ahead and taper in September even despite the slower GDP numbers because the labor market is holding up pretty well and that seems to be their focus." But the unemployment rate did not budge - sticking at 7.6 percent, comfortably above the 7 percent guide the Fed sees as a comfortable level to begin tapering. And there are two things that suggest the jobless rate could tick up before it ticks down. The number of Americans forced to work part-time rose last month and 1 million more Americans were classified as discouraged by the monthly survey, if those two groups leave the workforce then the unemployment rate will rise. The other thing that could complicate when the Fed starts tapering and by how much: spiking bond yields. SOUNDBITE: JULIA CORONADO, CHIEF U.S. ECONOMIST, BNP PARIBAS (ENGLISH) SAYING: "We're probably going to be looking at five-percent mortgage rates next week, which yes that's low by historical standards, but we are just seeing that housing recovery getting underway so how much of an impact does a five percent interest rate have for housing? That remains to be seen, but certainly that's a lot higher than the 3-1/4 percent rates that prevailed a month or so ago. And so, it is a worry that it's going a little bit too far, too fast."