Sunday, June 30, 2013

How many Jobs are Needed to Reach Fed's December Unemployment Rate Target for QE3 Tapering?

by Calculated Risk on 6/30/2013 06:18:00 PM

This is a common question, and I suggest using the Atlanta Fed's Jobs Calculator tool to estimate how many jobs per month will be needed to reach a certain unemployment level.

As an example, for the unemployment rate to decline to 7.3% in December (the high end of the Fed's forecast), with the participation rate staying steady at 63.4%, would require about 150,000 jobs per month for the next seven months.  This seems very possible.

If the participation rate increases to 63.6%, than the economy would need to add 210,000 jobs per month for the unemployment rate to fall to 7.3% in December (this is just an estimate).

You can put in your own assumptions to the calculator.

Another frequent question is when will the unemployment rate fall to 6.5% (the Fed's threshold, but not trigger, for raising the Fed's funds rate). If the participation rate stays steady, the unemployment rate will fall to 6.5% in December 2014 if the economy adds around 185,000 jobs per month.   This is consistent with the Fed not raising rates until 2015 or later.