Bernanke to push QE, saying jobs' data prove it works

United States Federal Reserve Chairman Ben S. Bernanke will probably take two lessons from better-than-forecast job growth: His record easing is working and the Fed should press on with its $85 billion monthly bond purchases.

Employment in the US rose 236,000 in February for the third monthly increase above 200,000 in four months, pushing down the jobless rate to a four-year low of 7.7 percent, according to Labor Department data.

"This is what proponents for QE were almost hoping for," said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics in Washington, referring to bond buying known as quantitative easing. "This is very close to what they were expecting and consistent with sticking with QE for the whole year," said Gagnon, a former associate director at the Fed's division of international finance.

The job market still has far to go before achieving the substantial gains Bernanke has said will warrant halting purchases that have pushed the Fed's balance sheet to a record $3.1 trillion, said Roberto Perli, a former economist at the Fed's Division of Monetary Affairs.

Policy makers "will want to see confirmations of these numbers in the months ahead", said Perli, managing director in charge of policy research at International Strategy & Investment Group in Washington. "You don't look at just one employment report."

Stocks and Treasury yields rose on signs the world's largest economy is strengthening in the face of federal budget cuts and higher payroll taxes. The Standard & Poor's 500 Index rose 0.5 percent to 1551.18, within 1 percent of its 2007 record. Treasuries declined, pushing up the yield on the benchmark 10-year note by 0.04 of a percentage point to 2.04 percent.

Central bankers are debating how long to keep up the monthly bond purchases, weighing the potential benefits to 12 million unemployed Americans against the risks the untested tool may destabilize financial markets or eventually fuel inflation. The Federal Open Market Committee has said it is waiting for the labor market to "substantially" improve while not specifying a numerical trigger for an end to the purchases.

Among central bank officials, Chicago Fed President Charles Evans on Feb 28 offered the most explicit guidance on the job gains needed before slowing and halting quantitative easing. He said he favors monthly job growth of 200,000 over a period of six months.

Bernanke said in April that the economy would need from 150,000 to 200,000 additional jobs per month for the unemployment rate to "decline gradually" at the rate that policy makers forecast at the time. Officials are looking for a "sustained" decline in unemployment over time even if those declines aren't "rapid", Bernanke said in September as he announced the open-ended bond-purchase program.

The February jobs report showed that hiring in construction jumped by the most in almost six years, while payrolls climbed at retailers and professional and business services such as temporary-help firms.

Some within the Fed have questioned the need to keep buying at its current pace. Kansas City Fed President Esther George dissented from policy in January out of concern the stimulus would fuel the risk of financial instability, while Dallas Fed President Richard Fisher has repeated that monetary stimulus won't help businesses hire.

St Louis Fed President James Bullard said the central bank probably will press on with asset purchases as contained inflation expectations give it time to continue quantitative easing.

"It's going to be a while on the QE program," Bullard, a voting member of the policy making FOMC this year, said before the release of the jobs report during a television interview on Bloomberg Surveillance with Tom Keene and Mike McKee. "We've got a lot of room to maneuver here."