When will the Fed end QE? The answer is in 38 months (over 3 years from now). How do I know this? You can calculate it yourself. The Atlanta Fed’s website has an employment calculator (click here) that allows you to fiddle with a few variables in order to guesstimate what the total number of jobs growth will be needed in order to arrive at a targeted unemployment rate.
In the recent December 2012 Non-farm Payroll (NFP), the economy added 155,000 jobs in December. A little disappointing – but average, relative to most of the reports we have recently received from the BLS. The unemployment rate held steady at 7.8%. We all know from last months Fed statement that they are targeting (click here) 6.5% unemployment before they will stop their current QE policies. So lets work backward from this. If we continue to get jobs reports like this past one, and all other assumptions held constant, at 155,000 new jobs per month, it will take us 38 months to get to 6.5% unemployment and the end of Fed QE programmes. However we all know that, if the economy does improve, the labor participation rate will rise. So let’s bump this up by just 0.5%. This means it will take 60 months or 5 years, with jobs reports like in December !!!
On more thing. Take another look at the thumbnail chart that shows the results of this simulation. The economy is cyclical. We are approach the end of the current cycle. As well, the current rate of job growth is relatively high historically. What if the economy stumbles and we can’t even maintain the current levels of job growth? Ouch …
With recent positive economic reports, the Dollar has gotten a bid, Bonds and Gold have sold off, due to the fear that the Feds unemployment targets are within eye sight – nonsense. Dollar bears and Gold bulls have faith, helicopter Ben will be hovering for a long long time to come.
Daily Market View: (click here for the video)