(MENAFN- Khaleej Times) The Federal Reserve will stick to its plan for a gradual reduction in bond purchases, economists said after a government report showed that US employment rose at the slowest pace in three years in December
The Fed will reduce purchases by $10 billion at each of the next six meetings this year before ending the programme in October, according to the median forecasts of 42 economists in a Bloomberg survey
The 74,000 gain in payrolls was the weakest since January 2011, Labour Department figures showed on Friday. The coldest December in four years probably contributed to a slump in hiring at construction and recreation companies, while industries such as health care and accounting also cut staff
"The weather probably did play a big role," said Michael Feroli, chief US economist at JPMorgan Chase & Co in New York. "It's a reminder that the improvement is not going to be a straight line.
The median forecast of the economists surveyed by Bloomberg projected payrolls would increase by 197,000. Estimates ranged from gains of 100,000 to 250,000
"The medium- to long-term concern is labour-force participation," said Vincent Reinhart, chief US economist at Morgan Stanley in New York
"Our population growth has slowed, fewer people want to work and productivity growth seems to have slowed.
The decline in the jobless rate poses a communications challenge for the Fed, which had pledged to hold the main interest rate near zero as long as unemployment stays above 6.5 per cent. Last month, they added that borrowing costs will stay low "well past" that level. "Their decision to step away some from strong rate guidance through an unemployment rate threshold in December seems prescient," said Reinhart
The Fed probably won't alter the unemployment threshold, according to the Bloomberg survey of economists. Seventy-three per cent of 41 economists said the 6.5 per cent threshold will remain. About 22 per cent said the Fed will alter it, and five per cent said it will be dropped entirely
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