The case strengthened for the Federal Reserve to start reducing bond purchases this month after a Labor Department report showed job growth in November was stronger than forecast.
Economists moved up forecasts for the first taper, saying the Federal Open Market Committee may start dialing down $85 billion in monthly bond buying at its Dec. 17-18 gathering rather than wait until January or March.
The jobless rate fell to a five-year low of 7 percent last month as payrolls swelled by 203,000 after a revised 200,000 increase in October, the Labor Department said today. The November payrolls gain exceeded the 185,000 median forecast of 89 economists surveyed by Bloomberg.
“It’s made tapering more likely for December, but it’s not a done deal,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics Inc. in White Plains, New York. “It’s not a blockbuster number. This would be a much easier conversation if it printed 275,000.”
The FOMC has pledged to keep buying bonds until the “outlook for the labor market has improved substantially.” So-called quantitative easing has pushed the Fed’s balance sheet close to $4 trillion this year with purchases of Treasury and mortgage-backed securities.
The payroll and unemployment numbers “are impressive in terms of a stronger economy and the need to exit QE,” Pacific Investment Management Co.’s Bill Gross said today on Bloomberg Radio. He said the odds of a December taper are “at least 50-50 now.”
The Standard & Poor’s 500 Index jumped 1 percent to 1,803.57 at 12:43 p.m. in New York. Ten-year Treasury yields were little changed at 2.87 percent after yesterday reaching the highest since September.
Economists in September predicted a taper at the FOMC meeting that month. The committee unexpectedly refrained from a reduction. Policymakers said at that meeting and again in October that they needed more evidence of lasting improvement in the economy and that fiscal policy was restraining growth.
The FOMC cited the drag from fiscal policy in its Oct. 30 statement, after a 16-day government shutdown resulted in the furloughs of as many as 800,000 federal workers. Data since then suggest the damage to the economy was limited.
A report yesterday showed third-quarter growth was faster than initially estimated as gross domestic product rose at a 3.6 percent annual rate, up from an initial estimate of 2.8 percent and the strongest since the first quarter of 2012.
“What else does the Fed have to see to buy at a slower rate?” said John Ryding, chief economist at RDQ Economics in New York who has worked at the Bank of England and the Federal Reserve Bank of New York. “If not now, when?"
Ryding said today’s employment report didn’t change his projection that the Fed will slow purchases to $70 billion a month at the next gathering.
‘‘If it was a close call in September, all of the things that made them tip to the side of not going have been largely cleared up,” he said.
Economists at BNP Paribas SA in New York stuck to their forecast that a reduction won’t come until the March meeting.
Policymakers probably will want to see more reports and broader measures that confirm the strength of recent reports, economists led by Julia Coronado wrote in a note today. “We think the Fed holds its fire in December and awaits more data.”
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