Congress and the Fed Look Ahead

Disappointing Jobs Reports Could Cause the Fed to Delay Tapering

The Federal Reserve may delay tapering its monetary policies given that the September jobs report was weak. Meanwhile, Congress is lifting the debt ceiling, but only until December. Wall Street currently has a lot of unanswered questions about what lawmakers and the Fed will do in the long term.

There are a number of unanswered questions about how the Federal Reserve will proceed with its monetary policies. In September, the US economy created far fewer jobs than expected. Nonfarm payrolls increased by 194,000 for September, which was drastically lower than the 500,000 jobs economists were expecting. The unemployment rate did decline to 4.8%, which is a new pandemic low. The disappointing jobs report for September was driven in large part by a decline in government employment.

The Fed Wants Close to Full Employment Before Altering Monetary Policy

The jobs report for September is causing concerns about economic recovery trends. Other sectors of the economy have been showing signs of recovery, even in the face of rising COVID-19 cases and supply-chain difficulties. Consumer spending is rising, manufacturing is growing, and the services sector is regaining strength.

The Fed is paying close attention to jobs numbers as it determines when it will begin tapering an aggressive bond-buying program designed to prop up the economy during the pandemic. With inflation meeting or exceeding the central bank’s 2% goal, the Fed has indicated that tapering could begin soon. However, the disappointing jobs report could throw a wrench into those plans.

The Debt Ceiling Has Been Raised…For Now

Washington is raising the US borrowing limit only until December 3. Lawmakers struck an agreement to increase the US borrowing limit to $480 billion just before the government would have defaulted. That is how much the Treasury Department says it needs to pay its bills through December 3. The debt ceiling is being lifted to cover expenses previously authorized by the government, not for new ones.

While the government was able to avert a default for now, this is only a short-term solution. Republicans and Democrats are still at odds about how to proceed after December 3. It will be interesting to see what decisions lawmakers and the Federal Reserve make in the coming months, and how they will impact the economy.

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