The US unemployment figures are always carefully scrutinised as a barometer of the wider US economy. However, the Federal Reserve has tied its “Tapering” activity to a threshold unemployment level of 6.5% and the condition that inflation is below 2.5% before it starts. Tapering is the term being used for the curtailment of the Federal Reserve’s monetary easing policy of asset purchases worth $85 billion per month. The purpose of the exercise has been to inject liquidity into the US economy and thereby kick-start the recovery. Since relatively short-term assets are being swapped out for longer-term debt, the policy also has the advantage of keeping US borrowing costs low (provided lawmakers don’t commit fiscal suicide, of course).
The most recent set of employment figures suggest that unemployment has eased from 7.3% in August to 7.2% for September, according to data from the US Department of Labor. 148000 new jobs were created last month, but the figure is below analysts’ forecasts for 180000 fresh jobs. The data could suggest that the recovery is “losing momentum” and has been seized on in various quarters to suggest that Tapering will be delayed for a few months more.
However, a report in The Wall Street Journal suggested that the Federal Reserve is in the process of moving the goalposts and that Tapering may commence once unemployment has eased to 7%. When the process does begin, it is likely that many developing markets will fall because a proportion of the liquidity generated in the US economy has been invested in these markets. In the interim, the news that Tapering is likely to be delayed was greeted with gains on major markets. The Dollar fell on the news since the quantitative easing measures being used to support the monetary policy mean that more Dollars will be created.