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Weak jobs report has traders pondering Fed’s next move


Stocks were higher in early trading on Friday as traders try to figure out what to do with weak job-creation data. According to the Bureau of Labor Statistics’ non-farm payroll report, the economy generated 113,000 new jobs in January. Analysts had been expecting 185,000. It was the second month in a row of disappointing data raising the possibility that the Federal Reserve may have started the process of tapering its Quantitative Easing program prematurely.

In the attached clip, Kevin Cummins of UBS says the Fed is unlikely to change course despite evidence that jobs growth has “hit a pothole” early in 2014. “I think the Fed continues with their gradual $10 billion (taper) per meeting. We’ll get another reading before the next FOMC meeting in March; the next big focus is to see Janet Yellen’s interpretation of the data when we get the semi-annual monetary policy testimony in mid February.”

As the Fed continues its gradualist approach to reducing stimulus, each piece of evidence that the economy has reversed course raises the ante. Though many would like to see Q.E. cut off immediately, the FOMC is attempting to signal its cautious optimism regarding the sustainability of economic growth. $10 billion on the margin has no practical impact on the U.S. economy. It’s symbolic. The challenge for Fed chair Janet Yellen is to show confidence in the current plan without seeming out of touch in terms of current data.

Quantitative Easing may have been a bad idea in the first place, but we’re stuck with it. The goal now is to get the economy weaned off the stimulus without making matters worse.

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