In the debate over when the Federal Reserve is likely to start scaling back its massive bond-buying stimulus, the number of jobs the U.S. economy generates is key.
And there's little agreement on exactly where that sweet spot lies.
Researchers from the Chicago Fed on Thursday argued that the huge job losses caused by the financial crisis and the ensuing recession mean the economy must generate about 195,000 jobs a month to bring unemployment down to normal levels within four years.
But a study from the Cleveland Fed on Friday suggests that gains of significantly less than that would mark "steady progress" toward full employment.
"Ultimately, the level of improvement that is deemed 'substantial' will be in the eye of the beholder, but we will consider outlooks which make steady and meaningful progress in lowering unemployment," wrote Cleveland Fed director of research Mark Schweitzer and research economist Murat Tasci in an economic commentary posted to the bank's website. "The scenarios that we view as relevant in today's economic environment would produce average employment gains of 150,000 per month or less for the current year."
Both papers are sure to feed the speculation over what level of job growth could trigger a reduction in the Fed's current bond-buying program. The Fed has said it will keep buying assets until the labor market outlook improves "substantially" but has provided no specific benchmarks.
Fed Chairman Ben Bernanke last month said the Fed may consider reducing its pace of monthly purchases, now at $85 billion in Treasurys and mortgage-backed securities, in its next few meetings if the labor market continues to improve.
Fed officials next meet June 18-19 to discuss policy.
Employers added 175,000 jobs last month, a government report on Friday showed, bringing the average monthly gain for this year to 189,000.
The gain falls short of the 200,000 monthly job additions that Chicago Fed President Charles Evans has said he would like to see for several months before he is confident the labor market has turned around.
But monthly job growth of over 200,000 is unlikely given the decline over the last decade in the rate at which people typically find jobs, combined with an aging population that trims the number of U.S. workers, Cleveland Fed's Schweitzer and Tasci wrote on Friday.
Indeed, they wrote, the economy could plausibly add just 106,000 jobs each month this year and still be considered making "steady progress."
Even assuming economic growth outpaces current estimates, the Cleveland Fed economists wrote Friday, employment growth would still be just 147,000 per month this year, on pace to bring unemployment down to 6.5 percent by the third quarter of 2014.
The Fed has pledged to keep short-term interest rates near zero until the unemployment rate, now at 7.6 percent, drops to at least 6.5 percent.
Cleveland Fed President Sandra Pianalto has said the Fed could slow its pace of asset purchases to ease the likelihood of excessive risk-taking or financial market distortion.
Pianalto and Chicago's Evans trade off for membership on the Fed's policy-setting panel each year, and Evans has the vote this year.
Atlanta Fed President Dennis Lockhart, who also votes this year, said this week he expects employment growth to continue in a range of around 160,000 to 175,000 jobs per month, and that anything less might be cause for renewed concern.
BRIDGE TOO FAR?
The divide among Fed economists is mirrored in disagreements among private forecasters.
To Eric Green, who heads global rates, currency and commodity research at TD Securities, gains of 175,000 or perhaps even lower should be enough to convince the Fed that it is safe to reduce stimulus.
"It is movement toward this type of outcome that the Fed is looking for, not a magical number that must be hit every month for six months," he wrote.
Carl Tannenbaum, chief economist at Northern Trust in Chicago, expressed confidence that Evans' goal is "not a bridge too far" given the pace at which the economy has added jobs despite the fiscal headwinds so far.
As those headwinds dissipate later in the year, "you could certainly see 200,000 a month," Tannenbaum said.
Traders, for their part, took Friday's jobs figures as more evidence the Fed will scale back stimulus sooner rather than later and, eventually, begin raising rates.
Traders of short-term U.S. interest-rate futures now are pricing in a first Fed rate hike for December 2014, about six weeks earlier than they had expected before Friday's jobs report.
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