No Matter What Happens With Tomorrow's Jobs Report, This Will Be The Debate Economists Will Be Having

Economists expect the Federal Reserve to announce later this month that it is tapering its monthly purchases of $US45 billion worth of Treasury bonds and $US40 billion worth of mortgage bonds.

However, if tomorrow’s jobs report (est. +180,000 payrolls, 7.4% unemployment rate) is really terrible, the Fed may be forced to delay the taper.

This is probably unlikely.

As long as the jobs report is mediocre or better, there will be tapering, say economists.

But, that’s where the debate begins.

It’s not just about when the taper will begin. Rather, the bigger issue may be how fast and furious will the taper be.

Here’s Deutsche Bank’s Joe LaVorgna with his take:

A more sizeable gain in August payrolls coupled with upward revisions and an even larger drop in the unemployment rate below our forecast, would likely engender a much larger-than-expected tapering of QE than what some market participants expect — we anticipate a $US25 billion reduction in asset purchases split as follows: -$10 billion in mortgages (to $US30 billion per month) and -$15 billion in treasuries (to $US30 billion per month). If, however,[Friday]’s results are much weaker than expected, then a taper-light situation should ensue, meaning that we would likely get a reduction of $US15 billion (-$5 billion in mortgages and -$10 billion in treasures). We suspect that [Friday]’s data will leave the taper-big versus taper-light debate unresolved, which means the remainder of the economic data between now and September 17-18 (i.e., retail sales, jobless claims, industrial production, CPI and housing construction) will dictate the outcome of the meeting.

Here’s a chart of how the Fed’s Primary Dealers see the taper rolling out. It also includes the path forecasted by the analysts at Societe Generale.

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