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Why the Fed won't taper on good jobs report

November 8, 2013: 11:22 AM ET

Anyone who thinks October's better-than-expected jobs report will make the central bank taper sooner is ignoring the mess in Washington.

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FORTUNE -- The monthly jobs report released Friday was better than expected, but anyone who thinks this means the Federal Reserve will start slowing down its economic stimulus program is probably overlooking Washington's dysfunction.

Recall in October, Uncle Sam was forced to partially shut down its offices and services after Congress stalled on budget talks. This wasn't all that surprising to the Fed, which expected that lawmakers would have a hard time getting their act together before hitting critical budget deadlines. In September, policymakers surprised Wall Street when they delayed plans for tapering its $85-billion-a-month bond purchase program.

Once again, the Fed may have to prepare if there's another debt fight. The federal government may have reopened for business, but it's funded only through January 15. And the U.S. could hit the debt ceiling again in early February.

MORE: Why the jobs picture is brighter than you think

True, Washington's stalemate didn't seem to have a negative impact on jobs growth; even though thousands of federal employees were out of work for more than two weeks during the government shutdown, the economy added 204,000 jobs in October -- higher than the average job gain of about 180,000 in the first nine months of this year.

The Labor Department also revised up jobs gains from the summer months. And even though October's unemployment rate rose slightly to 7.3% from 7.2% because of the thousands of furloughed employees, those employees returned to work when the government reopened.

All this might suggest Washington won't destroy the economy after all, but that may be putting too much faith in Congress. A government shutdown is very different from a government default, which economists fear could cause the U.S. dollar to collapse and all kinds of other havoc. And while Congress avoided having to miss its debt payments during the last budget fight, it was still a very close call and there's no assurance a default won't happen if a debt fight ensues early next year.

This isn't to say the monthly jobs report is no longer relevant to the Fed -- policymakers watch it closely to figure out what's best for the economy. However, the Fed has shown that Washington stalemate has become a more immediate threat to the economy than anything the jobs report says. With so much uncertainty still plaguing Capitol Hill, it's hard to see how the central bank will blindly cheer October's employment picture.

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About This Author
Nin-Hai Tseng
Nin-Hai Tseng
Writer, Fortune

Nin-Hai Tseng covers economics and finance. Before joining Fortune, Tseng was a reporter at The Orlando Sentinel and a public affairs associate at GE. She holds an MPA from Columbia University and a BS in Journalism from the University of Florida. She lives in New York City.

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