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In the wake of today’s disappointing jobs report, all of Wall Street’s top economists, including Goldman’s Hatzius and Morgan’s Greenlaw, are ramping up their expectations for more easy monetary policy when the Federal Reserve concludes its Federal Open Market Committee (FOMC) meeting next week.UBS’s Sam Coffin thinks its certainly happening in a new note titled Payrolls To Prompt QE.
The employment report suggests only a very limited bounce-back in hiring after the rapid slowing in Q2. Private payrolls rose 226k per month in Q1, slowed to 88k per month in Q2, and have reaccelerated only to 133k. In turn, the payroll data appear roughly consistent with the soft Q3 output growth that we have been forecasting—a 1 1⁄2 % annual rate of real GDP growth in Q3. For the Fed, that growth pace does not represent the substantial and sustainable improvement in activity necessary to head off further accommodation. As such, we now forecast new easing at the September 13 FOMC meeting. That easing will probably take the form of a longer-term commitment to hold the funds rate at extraordinarily low levels as well as a new round of Treasury (and perhaps MBS) buying by the Fed.
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