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Positive Jobs Report Could Prompt Fed to Adjust Stimulus

A rather unexpected and hearty June jobs report by the U.S. government could actually motivate the Fed to halter stimulus bond-buying as soon as September, analysts say. Last month, more than 195,000 jobs were added in the nation. This places the average monthly figure for jobs added in 2013 to 202,000 per month as we reach the midway point of the year. In light of these newer, healthier demographics, the Fed should be urged to curb bond-buy as soon as September.

“The labor market has very strong momentum,” explained Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi in New York.

Currently, the $85 billion in monthly bond-buying by the Fed is referred to as “quantitative easing.”

Analysts are predicting that if this upward trend of economic stability and job growth continues or stays on course, the Fed could lower bond-buying by as much as one-third of the rate it’s at now. If the pattern of healthy and stable job growth stays the course through January, the Fed might reduce bond-buying by another one-third, or by a total of two-thirds the amount it is now over the next six to eight months.

Experts say that there is one drawback that could prevent the Fed from reducing quantitative easing: an increase in long term interest rates. Such rises could mar a recovering housing market and could also impact the auto industry – both of which are on the rebound following a near total collapse in 2006.

“They want to be very cautious,” said Gus Faucher, senior macro economist at PNC Financial, in an LA Times interview. “The rates are already increasing. If the Fed looks like they’re going to cut back a little more quickly on stimulus, it will put more pressure on rates.”

The current bond-buying program is the third of such kind that has been implemented by the Fed in attempts to strengthen the economy via means of quantitative easing, and was initiated in September, 2012, under the auspices of reducing long term interest rates to incubate further economic growth.

When the program was first initiated, unemployment was at a staggeringly unhealthy rate of 8.1 percent. Since the program’s implementation, however, unemployment has dropped to a more livable rate of 7 percent. It should be noted that in lieu of job gains, a healthier job market and a rebounding auto industry, unemployment rates were still up in June to 7.6 percent.

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