Markets are telling the Fed to start tapering now after big miss on September jobs report, says Mohamed El-Erian

Mohamed el-erian pimco
Mohamed El-Erian REUTERS/Fred Prouser
  • Markets are sending a clear signal to the Federal Reserve to begin tapering its asset purchases Mohamed El-Erian told Bloomberg TV on Friday.
  • His comments came just moments after monthly jobs data showed a big miss for jobs added in September.
  • The weak headline number was alleviated somewhat by higher wages and an upward revision to the July and August numbers.

Markets are sending a clear signal to the Federal Reserve to begin tapering its asset purchases in the wake of a disappointing jobs report, Mohamed El-Erian told Bloomberg TV on Friday.

The Queens’ College President and economist told Bloomberg that Fed Chair Jerome Powell’s previously articulated test for beginning tapering this year had been met.

“The market is also now separating taper from rate increases,” El-Erian said. “So the message from the market to the Fed is: ‘Go ahead and taper, we expect you to.'”

His comments came just moments after the Bureau of Labor Statistics released monthly jobs data showing 194,000 new jobs created in September, a big miss from the consensus expectation of 500,000.

The weak headline number was alleviated somewhat by higher wages in September and an upward revision to the July and August numbers, adding an additional 169,000 jobs for a net total of 371,000. The unemployment rate also fell from 5.2% to 4.8% while the labor force participation rate stayed flat.

El-Erian has been banging the drum for months on the need for the Fed to taper as soon as possible. Last month, he blamed the central bank for bond-market turmoil, saying markets would begin to question the Fed’s judgment on inflation the longer it waited to taper.

Rick Rieder, BlackRock’s CIO of global fixed income, largely sided with El-Erian in a note to clients following the jobs data.

“The Fed probably will (and should) continue its plan to taper excessive liquidity-accommodation in the very near future,” Rieder wrote. “What will be a true test for the Fed into 2022 is whether these supply shocks (including labor) continue well into the year, and how the Fed would deal with inflation continuing.”

Likewise, Charlie Ripley, a strategist at Allianz Investment Management, said on Friday that the bright spots in the jobs data should keep the Fed on course to taper.

“Today’s report shouldn’t sway the Fed from moving forward with tapering the bond program in the coming months as tighter labor conditions and upward wage pressure outweighs the unevenness in the payroll numbers over the past few reports,” Ripley wrote.