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

02/03/2012 04:45 pm ET | Updated Apr 05, 2012

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
"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)