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Jobs data may determine Fed’s next step

Amy Scott Jun 1, 2012

Stacey Vanek Smith: A little bit later this morning we’ll get jobs numbers for May. Economists are guessing the economy added 158,000 jobs last month. That would be an improvement over April’s lackluster performance.

As Marketplace’s Amy Scott reports, this month’s number could help determine whether the Federal Reserve pumps more money into the U.S. economy.

Amy Scott: So let’s say the jobs report doesn’t look good.

Morris Davis is an economist at the University of Wisconsin Business School. He says the old thinking at the Fed was that US was on a slow path to recovery.

Morris Davis: Now, with the slowdown in China, with stocks falling 6 percent, with the Eurozone about to implode, the likelihood that the U.S. recovery is going to be thrown off track perhaps significantly, might make the Fed more likely to act.

So, what can the Fed actually do? Some economists say a third round of so-called “quantitative easing” is likely. The Fed would buy long-term bonds to try to push interest rates lower. The hope is if the cost of borrowing goes down, businesses will be more likely to invest and create jobs. The Fed bought more than $2 trillion in bonds in the first two rounds of easing. Critics say the risk is that it won’t work and could trigger higher inflation.

Now, if the news is good — let’s say the economy created at least 150,000 jobs last month — Davis doesn’t think the Fed will act.

I’m Amy Scott for Marketplace.

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