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“All but met,” is the sentence Fed Chair Jerome Powell said about the plan to taper, but the weak NFP numbers may derail the bank from its plan to taper sooner. On Tuesday, three U.S. Federal Reserve policymakers said the economy had recovered enough to begin tapering, reinforcing expectations that the Fed will start reducing its monthly bond purchases as soon as next month.
The U.S. economy added 194K jobs, less than expected by around 500K, which disappointed, indicating slowing employment and casting doubt on tightening. Average hourly earnings were up 4.6% y/y as expected. A weaker labor market and price pressures mean that more support from the Federal Reserve is needed. The bank may delay announcing the cut until November or December, which leads to a weaker dollar.
If the Fed confirms that they are keen to start tapering gradually, that will open the doors for the U.S. dollar to rise and stocks to fall; the reaction will be more pronounced if the CPI inflation data comes on the weaker side. Conversely, if the FOMC meeting minutes come without evidence of tapering, which is unlikely, the U.S. currency will decline.
Some analysts believe that the weak jobs report will not derail the plan to reduce the purchase of bonds. Jerome Powell said the central bank might start its long-awaited tapering soon. This is while the latest dot plot showed 9 of 18 Fed officials expect at least one rate hike by the end of next year.
Federal Reserve’s James Bullard has stated.
Wants to finish the taper in Q1 of 2022 to be in place to react to higher inflation.
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The dollar held near a one-year high against its major peers on Wednesday, amid growing expectations that the Federal Reserve will announce to taper next month, likely to be followed by a rate hike by mid-2022.
The dollar index, which measures the U.S. currency against a basket of six currencies, fell slightly to 94.356 when it touched 94.563 for the first time since late September 2020.
