Some investors are speculating that the Federal Reserve may wind back its $85bn-per-month bond-buying program sooner than expected.
Although the program has led to record low mortgage rates, it’s also made investors jumpy. Talk during the summer of ending the stimulus in September led to rates jumping more than a full percentage point, strangling the refi boom and leading many big lenders to cut mortgage jobs.
Even though the Fed decided to hold off until stronger economic data came in, some economists are speculating that the October jobs report might be what the agency was waiting for. The economy added 204,000 jobs last month -- nearly 80,000 more than projected – and revised numbers for September and August added another 60,000. That came as a surprise to a market that expected job growth to stumble due to last month’s government shutdown.
Although unemployment also grew – from September’s 7.2% to 7.3% in October – the unexpected job growth is leading some economists to predict that the Fed will feel pressure to taper its bond-buying stimulus sooner rather than later.
“Good news is now bad news (for markets),” Deutsche Bank Chief U.S. Economist Joseph LaVorgna told CNBC. “The Fed might taper sooner.”
JPMorgan economists, who had originally predicted a March taper, said the unexpected job growth could push the taper ahead to January.
“This stronger trend shifts the expected timing of the Fed taper of asset purchases to January,” they wrote. “The timing could be earlier if the labor market continues to surprise on the upside and could be later if the fiscal negotiations are drawn out.”
But Bryan McNee, vice president and senior bond analyst for MBSAuthority.com, said the Fed would probably need more data before making a decision on the taper.
“I don’t think anything is eminent, but there is some stronger data that needs to be paid attention to, and if there’s another one of these strong reports, that’ll give them more ammunition to begin tapering,” McNee told MPA. “Keep in mind, this is one report. I think we’ll need at least one more that’s as strong as this or stronger before it gives them enough to start doing it.”
There are other factors to be taken into account as well, McNee said – such as the confirmation of Janet Yellen to succeed Fed Chair Ben Bernanke and the resumption of debt ceiling negotiations in February.
“Those are some very big ifs, and they’re all not going to happen until January or February,” McNee said. “It’s too early to start jumping up and down and saying the Fed’s going to taper in January.”