Fed to begin tapering on positive US jobs data: Expert

The US payrolls, according to ADP data, reported a rise in private sector job growth in August to 176,000 against the market expectation of 184,000. The crucial US non-farm payroll data is due on Friday. The Fed had hinted at cutting down its asset purchase programme if the economy continues to strengthen.

Speaking to CNBC-TV18 on the same, M Cary Leahey, senior advisor, Decision Economics said that according to Federal Reserve as long as the job growth is 175,000 or more despite economy being less than 2 percent, Fed is likely to pullback the monetary stimulus. “This is what the market thinks, and that is why bonds are down,” he added. (Read More)

Meanwhile,  Leahey said that the Fed has actually misinterpreted the jobs data and according to some of its members the job situation has improved in the last three months, which is not the case. The job situation hasn’t faded much, but has not improved in the last three months, he added.

Below is the verbatim transcript of M Leahey’s interview on CNBC-TV18

Q: What do you make of the data that we have seen today, the strength in manufacturing seen over the last week or so? What do you expect from tomorrow before I get to the taper situation?
A: For the fixed income it has been like a punch this week. The ISM August non-manufacturing index was positive and a rise in US non-farm payroll data tomorrow will lead to tapering soon. So unless you are really surprised tomorrow, no one thinks the Federal Reserve is going to do a U turn and not taper at the end of the month.
There are lots of good reasons not to taper, the Fed has told us that the current pace of the economy even if it is below 2 percent as long as job growth is 175,000 per month or better they are going to pull the trigger this month and that is what the market thinks will happen and that is why bonds are down. Q: What number are you looking for tomorrow that will confirm that we will see tapering later this month when the Federal Open Market Committee (FOMC) meets and where that number needs to be in order to kill any speculation of a taper?
A: I would think the kill speculation of a taper would be around 200,000 or better. To keep tapering you probably need a number below 150, like 125. But more importantly you will need somebody from the Fed to say next week I thought things are going to pick up in the third quarter, they haven't, I have to re-evaluate my situation.
No one has said that, in fact, the Fed has actually misinterpreted the data and FOMC members have said that the job situation has improved in last three months. It hasn’t really faded much, the job situation has not improved in the last three months but it is still okay.