Tapering Still Seems to be in Our Future

The June employment report showed the economy added 195,000 jobs, ahead of the consensus forecast of 160,000. There were further signs of job market strength as the report showed the economy added 70,000 more jobs in April and May than the government previously estimated – 50,000 in April and 20,000 in May.

In another positive sign for the economy, the unemployment rate remained steady at 7.6%, likely indicating that more people started looking for work last month.

While they remained in positive territory, stocks pulled back from their highs as the market digested the news. On the other hand, 10-year Treasury yields surpassed 2.7%, closing at their highest levels since August 2011.

The payrolls report is closely watched by the bond market, due to its part in determining when and how the Federal Reserve may act to scale back its monetary policy. The Fed has said a wind-down of its bond-purchase program, which has held interest rates down, will depend on the pace of improvement in the labor market.

All in all, the employment data lends further credence to the idea that the Fed will start to taper QE3 at the Federal Open Market Committee meeting scheduled for September. Over the long haul, expectations are that monthly job gains ranging between 150,000 and 200,000 will eventually bring the unemployment rate down.