Forever Fed: Jobs Blues Sets Up Eternal Easing
March's miserable jobs report stoked a debate about the strength of the economic recovery but helped settle any uncertainty over Federal Reserve policy.
With growth of just 88,000 jobs and a sharp drop in workforce size came the realization that the central bank's lifeline to the markets and slow-moving economy would not be cut anytime soon.
"That talk was always a little premature anyway," said Brad Sorensen, director of market and sector research at Charles Schwab. "The Fed is solidly in the continued full pedal-to-the-metal status at this point."
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Questions had arisen over Federal Reserve intentions in recent days as some members worried about effects from the asset purchases and zero interest rate policy. Those twin easing measures have dominated the central bank's approach since the financial crisis.
Market participants worried that the Fed might pull back early from the $85 billion a month in Treasurys and mortgage-backed securities it has been purchasing.
But the most recent Labor Department data pointed out that the economy remains far from the target levels the Fed has set for an exit, despite an unemployment rate drop to 7.6 percent. The move came not from a significantly improving labor market but rather an exodus of Americans from the labor force.
"If this continues, in combination with soft hiring, we could be staring at a string of soft payroll reports in the months to come," Tom Porcelli, chief U.S. economist at RBC Capital Markets, said in a note to clients. "This will go a long way in dampening any discussion on early tapering by the Fed."
For investors, that means a market that remains tied to Fed money creation, which has exceeded $3 trillion and managed to keep a floor in any equity pullbacks.
"This is an environment where you buy the dips," said Kate Warne, investment strategist at Edward Jones. "It's still an environment of extraordinary Fed accommodation."
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In fact, the way in which the unemployment rate is dropping could cause the Fed to rethink and prolong its exit strategy.
The Fed has set a target unemployment rate of 6.5 percent and inflation at 2.5 percent before it will consider raising rates.
But even that low of a jobless rate may not be valid if it's predicated on a decreasing labor force.
"This is a testament to the fact that confidence in the labor backdrop is severely lacking," Porcelli said of the 34-year low in the labor force participation rate. "This dynamic is ultimately one of the reasons we think the Fed will regret having stated an explicit guidepost on the (unemployment) rate."
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Economists cautioned that the March numbers shouldn't be viewed in too dire a sense, considering that the Bureau of Labor Statistics has been consistently revising monthly estimates upward.
Job growth has averaged 168,000 over the past 12 months, and 2013 has kept that pace almost to the number.
However, that's not a fast enough pace to drive down the unemployment rate to acceptable levels anytime soon.
"Job growth this side of 200,000 is going to keep the Fed doing exactly what it's been doing," said Steve Blitz, chief economist at ITG Investment Research. "It certainly puts doubt into the notion that we're accelerating into a plus 200,000-type of number, so yes, it takes (an end to Fed easing) off the table."
—By CNBC's Jeff Cox. Follow him on Twitter at JeffCoxCNBCcom.