Employment Throws a Curve Ball After Fed Tapering
• Employment plummeted well below consensus estimates, rising by only 74,000 jobs in December compared to the survey forecast that expected almost 200,000 jobs. We believe that much of the decline is due to one-time seasonal quirks and we could see some payback in the coming months.
• The weakness in the employment report brings into question whether the Fed moved too quickly on their decision to begin tapering and may see some adjustment in the expected course in the slowing of asset purchases. While this question is on the minds of Fed watchers, the Fed left plenty of wiggle room in its language to change course if further data disappoint.
Will The European Central Bank Ease Further?
• Amid signs that economic activity in the euro area continues to expand, the European Central Bank decided this week to keep policy unchanged. The decision was widely expected.
• However, the recovery is by no means firmly established, and CPI inflation has slipped below 1 percent. The ECB continues to maintain a “bias” to ease further, and we think there is a strong case to be made for a reduction in the ECB’s main policy rate to only 0.10 percent at some point in the next few months.