Unemployment Rate January 2012: Economists Say Job Growth Won't Deter Fed From Stimulus

By Chris Reese
NEW YORK, Feb 3 (Reuters) - Economists at most leading Wall Street firms stuck to
their belief that the Federal Reserve will undertake another massive stimulus program, even
after data on Friday showed U.S. job growth hit its fastest pace in nine months in January.
Economists at 13 of 20 U.S. primary dealers - the large financial institutions that do
business directly with the Fed - said the Fed would eventually expand its balance sheet by
buying mortgage-backed securities or a combination of MBS and Treasuries.
A similar poll conducted last week showed 12 of 19 dealers were looking for another program
of quantitative easing.
Friday's poll came after the government said U.S. employers added 243,000 jobs last month,
and the unemployment rate dipped to 8.3 percent from 8.5 percent in December.
"Despite the fall in the unemployment rate, we do not believe the outlook for Fed policy has
been altered significantly," said Omair Sharif, U.S. economist with RBS Securities in Stamford,
Connecticut. "To be sure, it will be more difficult for (Fed Chairman Ben) Bernanke to
sell QE3, but it is still too early to rule it out, given the strong inclination that we think
the Fed leadership has to act."
The Fed has already completed two rounds of quantitative easing, known as QE1 and QE2, under
which it has bought a total of $2.3 trillion in mortgage-backed securities and Treasury debt.
Lingering economic weakness has fueled expectations of more such stimulus.
The Fed's current $400 billion stimulus program, dubbed "Operation Twist," extends the
maturity of the central bank's Treasury debt holdings in an effort to bring down longer-term
rates like those on mortgages. Operation Twist is scheduled to last through June.
Fed officials last week said high unemployment was one of the reasons they expect to hold
interest rates at the current level near zero through late 2014, and that they were considering
further stimulus.
Though the rate of job growth in January was the fastest since April and the 8.3
percent unemployment rate was the lowest since February 2009, the stop-start nature of the
recovery so far means the Fed will be looking for consistently strong improvement in the labor
market.
"The Federal Open Market Committee majority will need to see sustained strong
hiring for many months before QE3 is off the table," said Michael Hanson, senior economist at
Bank of America Merrill Lynch in New York.
In Friday's poll, nine of 12 dealers expected the Fed to undertake QE3 in the first half of
this year, while two dealers saw the program in mid-2012 and one forecast it for September.
The median of forecasts from 11 dealers was for a program that is $600 billion in size,
which was unchanged from the results of a similar poll last week.
Six of 12 primary dealers said a QE3 program would involve the Fed buying only
mortgage-backed securities, while six said the central bank would buy both MBS and Treasuries.
"They have bought a lot of long-term Treasuries, but to do another big program of several
hundred billion dollars they would really be crowding the long end of the Treasuries market,"
said Kevin Logan, economist at HSBC Securities in New York. He added, "They also want to get
directly at the housing market, so buying mortgages is more direct."
There are 21 U.S. primary dealers, of which 20 responded to the poll.


Do you
expect the
Fed to If so, will
announce a How large the Fed buy
further round will the MBS, or
of quantitative program be? Treasuries,
COMPANY easing? When? ($billion) or both?

BAML Yes (Yes) Sept (Sept) 800 (800) Both (Both)
BMO Capital No (Possibly) No (NA) No (NA) NA (MBS)
Bank of NS Yes (Yes) Mid 2012 (Mid 2012) 500 (500) Both (Both)
Barclays No (No) No (No) No (No) NA (NA)
BNP Yes (Yes) June (April) 400 (400) MBS (Both)
Cantor Yes (Yes) April (April) 750 (750) MBS (MBS)
Citigroup No (No) No (No) No (No) NA (NA)
CSuisse Yes (Yes) Q2 (H1 2012) 700 (600) Both (Both)
Daiwa No (No) No (No) No (No) NA (NA)
Deutsche No (No) No (No) No (No) NA (NA)
Goldman Yes (Yes) Mid 2012 (Mid 2012) NA (NA) NA (NA)
HSBC Yes (Yes) NA (June) NA (NA) MBS (Possibly Both)
Jefferies Yes (Yes) Q2 (Q2) 750 (750) MBS (MBS)
JP Morgan No (No) No (No) No (No) NA (NA)
Mizuho Yes (Yes) Q2 (Q2) 800 (NA) Both (Both)
M Stanley
Nomura Yes (Yes) Q2 (Q2) 350-500 (375) Both (MBS)
RBC Yes (Possibly) H1 2012 (NA) 600 (500) MBS (MBS)
RBS Yes (Yes) June (Mid 2012) 600 (600) Both (NA)
Soc Gen Yes (Yes) March (March) 600 (600) MBS (MBS)
UBS No (NA) No (NA) No (NA) NA (NA)




(Additional reporting by Pam Niimi; Editing by Leslie Adler)

Comments

[Kenz300]

02:48 PM on 02/10/2012

The world economy was built on cheap oil. The era of cheap oil is coming to an end.

Rising demand from China and India are outpacing the worlds ability to supply more oil raising the price for all. Every time there has been a spike in oil prices a recession has resulted. The only thing that will cause the price of oil to drop substantially is a recession/depression which will reduce the demand for oil significantly.

The price of oil is part of the cost of everything. The food you eat needs to lots of oil to be produced. From tilling the soil, planting the crop, harvesting it and transporting it to market. Oil price inflation is food price inflation. Every thing is the store came by boat, train or truck which use oil for fuel. All goods will increase in price when the price of oil goes up.

Too little has been written about the contribution to the collapse in 2007-8 that high oil prices made. When the price of oil shot up to $147/barrel everyone in the world had less money to spend on other things.

When it costs an extra $100 or $200 a month to drive to work that money comes from somewhere else in the budget. Did that extra $200 contribute to the housing collapse?

The world is unprepared as individuals, businesses and politicians for the rising cost of oil.

[iam99]

08:47 AM on 02/06/2012

A gordian-knotted conundrum, indeed. The fed has bought, and is to buy more, MB(un)S with contracts on properties with broken chain of titles, MERS-signed fraud docs, and with highly suspect appraisals, at lease due to the fact of a decreasing market. So who else in the entire world would buy these things?
How is the value being assigned?

[iam99]

05:56 AM on 02/06/2012

Don't see value in broken chain of title (in)securities. What are they buying again?

[aforbes808]

10:41 PM on 02/05/2012

Place your bets.

[Rick4646]

10:27 PM on 02/05/2012

We need another stimulus... our 1st stopped the 750,000 jobs/month being stopped and our GDP went from -9% to +2% after it was shortly implemented.

[Janzee12000]

06:19 PM on 02/05/2012

Right this way ladies and gentlemen! The FED discount window is right this way! Don't miss the incredible low-rate, the profits never before reached will be your mantra! Step right this way! Don't be caught without having a billion in the bank when inflation hits. Keep your wealth and get the money before it all runs out! Right this way!

[Bookwomyn]

03:15 PM on 02/05/2012

Why do journalists (and other) always use "deaf" in this sort of story? Just because a person is Deaf does not mean they do not pay attention or otherwise ignore best practices. Please stop insulting the Deaf Community in this manner.

[Linda from Deerfield]

09:11 AM on 02/05/2012

Isn't it interesting that the "raging inflation" crowd doesn't have anything to say any more? If people believed it, there would be a buying spree as they stocked up on everything possible before it all becomes unaffordable.

[mwr133]

12:41 PM on 02/05/2012

It hasn't hit yet, but it's unavoidable. There is an excess amount of dollars in the world markets. Econ 101 says that the more goods available, the less each is worth.

[jeffreywilsonz]

12:48 AM on 02/05/2012

Online universities like WGU keep getting bad reviews. The truth is, most degrees in 10 years will be online. I went through High Speed Universities for my BSN, and now WGU for my Master.

[LiteSleeper]

12:30 AM on 02/05/2012

QE1 and QE2 were by no means stimulus. They were bankster bailouts and did nothing but put more money in their hands to speculate with and drove up the price of all commodity inputs. All we got out of it was increased prices for food and gas while the banksters padded their bonuses.

And in any event, there's been no job growth. You don't magically lose 2.4 million workers from the number of employed persons in one month and then claim you had a gain of 243,000. You certainly don't show that the labor participation rate has fallen to 63.7% when the historic rate for the last 30 years is 65.8% and then claim that magically the unemployment rate went down. These are all bankster-centric numbers intended to fool retail investors (i.e. regular people like you and me) to throw away more of our money in their rigged stock market while they bet against it. Wait for it to go down again in the next few days when they "realize" the economy isn't as good as they "thought". Remember, if things were actually getting better you couldn't have QE3. That's why the truth will be allowed to come out for a little while.

[Trustfunded1]

04:52 PM on 02/04/2012

QE doesn't create jobs.

Without jobs and wages housing will never recover along with the economy.

[Bart DePalma]

02:49 PM on 02/04/2012

That is because job growth last month barely exceeded population growth. The unemployment rate dropped because the Obama BLS stopped counting 1.2 million Americans as part of the labor pool.

[Bigleague]

10:47 PM on 02/04/2012

Well, except for bringing Obama into this you are partially right.
What it means is that the number of new unemployment claims, or those requesting unemployment benefits has gone down. Which is a good thing. Of course it doesn't count those that are no longer eligible for unemployment benefits and do not have jobs. The best unemployment rate doesn't count those that don't have jobs and are not asking for or getting unemployment benefits.

[Bart DePalma]

11:12 PM on 02/04/2012

The reason I bring up Obama is that BLS is excluding historically massive numbers of Americans from the labor pool, which is artificially lowering the U3 unemployment rate during Obama's reelection campaign. How precisely does the population of a small city suddenly disaappear from the labor pool in the space of a month?

[Linda from Deerfield]

09:06 AM on 02/05/2012

The way the labor pool is measured has not changed in decades. What you are pointing out is one of the big reasons why Bush era unemployment stayed relatively low, even though there was tremendous job destruction and virtually no net job creation.

[beckjr2000]

02:47 PM on 02/04/2012

Every time the Fed introduces more money into the system like QE1 and 2 they reduce the purchasing power of the dollar. None of this money goes to the average citizen. This effectively reduces the value of every saving account and retirement plan in the U.S. It also indirectly increases the cost of everything that consumers must buy. Have you noticed the difference in the cost of food and fuel since this administration took office?

[Bigleague]

10:53 PM on 02/04/2012

The cost of food and fuel is NOT caused by Obama administration.
That would be like Bush being a 9.9 earthquake and then blaming Obama for the tidal wave that ensued after the earthquake stopped.
Obama has made the damage of the republican/teabagger earthquake-induced tidal wage slow down and be less devastating as it would have been if he had not been elected. Now you have the new republican/teabaggers wanting to get in there so they can have another even bigger earthquake and nobody to protect us from the tidal wave.
People have to listen and understand that the republican/teabaggers want nothing more than to see most of us disappear by any means or become their slaves and remove all of our rights and destroy our country and the planet. Only the 1% mean anything. The rest of us are on the earth to do whatever they tell us to do and not ask questions.
I'll take a president that cares about our country and us and doesn't get as much done as he could because of obstruction and destruction from the opposing jerkwads over jerkwads who only want to take away all of my rights and then blame me for existing and being a bother to them.
They can just kiss my behind and go away. They have no value.

[ruolivert]

02:22 AM on 02/05/2012

The cost of food and fuel is first determined by the value of the currency being used. The only thing that gives our currency substantial value is its status as world reserve currency. We lost that and the cost of everything goes up, quickly

[tempered1]

01:22 PM on 02/04/2012

JUST ONE QUESTION - WHERE'S the BAILOUT for the AMERICAN PUBLIC????

People losing their shirts, their homes, their walk of life, no money, no job, prices astronomical and going higher every day, everything out of reach, no hope, no faith, NO FUTURE!

Enough of this 'stimulus crap' to save banks! They made poor choices, gambled, ran the economy into the ground, and now don't want to take a hit! It's the Feds to the rescue - again! Tarp, Bailout, stimulus, QE1, QE2, possible QE3, the list goes on! ENOUGH ALREADY!!!!

When are the PEOPLE going to get the stimulus THEY NEED??? They were bamboozled, lied to, told half-truths, taken for a ride, hyped, cajoled, manipulated, and any other word you can find that says 'SHAFTED', and yet nothing gets done! Yeah, there's the refinance program and tons of rhetoric that goes nowhere - but guess what - RHETORIC doesn't pay bills and help people get back on their feet! MONEY DOES! So,,, where's the PEOPLE'S BAILOUT? Why isn't the Fed sending every homeowner a million bucks to help them? It's small pittance in comparison to what they've done for the banks! It would allow people to PAY OFF their mortgages, PAY OFF their credit cards, PAY OFF off college loans, and get back on their feet! AND,,,,, the FED would get a good chuck of its money back in the form of federal taxes! Homeowners happy! Banks happy, Fed happy!

So,,, the question begs - WHERE'S THE PEOPLE'S BAILOUT?

[texdoc96]

02:19 PM on 02/04/2012

Returning money to people who work is called tax cuts. This administration has only supported a two percent payroll tax reduction. Any other tax cuts have to be offset with tax increases in their minds.

[mmcgrew]

05:32 PM on 02/05/2012

A tax cut of 2%........from 6.2 to 4.2........ is a cut of about 30%. ONLY ?

[seanspec]

07:00 PM on 02/04/2012

Heck yes. I mean just because most people decided they could get everything they wanted and charge it to their credit cards, buy homes they knew they couldn't afford, go on trips they couldn't pay for, it's the banks fault. Yep. Now let's OWS, charge the successful people that pay all the taxes more so that we can have the government send checks to people that didn't earn it. WHAT A PLAN....Please don't raise children or teach.

[Robert SF]

12:57 PM on 02/04/2012

On this, I hope the Republicans can block Obama because the money will just go to Wall Street like last time and the time before.

[texdoc96]

02:21 PM on 02/04/2012

They can't the fed doesn't have to get congressional approval. Once Obama starting being blocked the economy has started to pick up.

[Obrand]

02:41 PM on 02/05/2012

The economy improved in spite of obstructionists.
Get used to it.
And, when Congress blocks the latest attempt by Obama to help jump start the economy the country will be watching Congress sabotage it.
Feb 29th we'll see who is or is not in favor of improving the economy.

[Obrand]

02:44 PM on 02/05/2012

So you believe the Stock Market gains were from Republicans blocking Obama's recovery?
& so then Bush's Stock Market losses were from Republican economic policies, since, Obama was not the President.
Funny.