"It looks like it's a weather issue - a big drop in construction and a 1,000 drop in transportation. People will focus on the unemployment rate drop and the upward revision to the prior month."
- John Canally, an economist for LPL Financial
During the December FOMC meeting the Fed has shed some light on their future moves, providing some relief for market participants who were making their bets on when and how the central bank will start tapering its QE during the last six months or so. Bernanke comments are suggesting two central bedrock assumptions for the whole 2014– growth will continue accelerating amid abating fiscal squeezes, and, at the same time, the Fed will reduce its monthly purchases by $10 billion per meeting until they will be withdrawn completely.
Last week, on Friday, the employment report came as something similar to a nightmare, involving a steep decline in payrolls and participation rate. While this single report is widely expected to be brushed aside, moderate job growth and a constantly shrinking labour supply will be adding more pressure on the Federal Reserve as 2014 progresses. Moreover, despite the fact FOMC members are almost univocal on their plans now, there are concerns there could be significant division among members regarding their economic analysis. Since 2008 the Fed has been super-dovish; however, it can change in the nearest future and only disappointing job reports and weak inflationary pressure can limit hawkish views. Meanwhile, Obama nominated Stanley Fischer, Lael Brainard and Jerome Powell for positions on the Fed Board of Governors, suggesting there will be some changes in leading positions.
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