The very disappointing 54,000 increase in May's non-farm payrolls, down sharply from a 232,000 gain in April, will undoubtedly lead to calls for the Fed to continue with its large-scale asset purchases beyond the scheduled conclusion of QE2 at the end of this month. We probably will see growth rebound in the second half of the year, as commodity prices drop back and any Japan-related disruptions unwind. For that reason we don't expect the Fed to act immediately. Nevertheless, the extent of this slowdown is becoming a huge concern, particularly with a potentially big fiscal consolidation on the way and we wouldn't rule out a QE3 either later this year or in early 2012.
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