By Ann Saphir

(Reuters) – The Federal Reserve could reduce its support of the economy in the next month despite a significant slowdown in job gains last month, as the U.S. latest surge in COVID-19 case numbers crested and started to recede.

Although employers created only 194,000 new jobs in September according to a U.S. Labor Department report, the upward revisions of prior months’ data mean that the economy now has recouped half the jobs deficit in December compared to pre-pandemic levels.

Jerome Powell, Fed chair, said that last month he would only require a “decent September U.S. employment report” to allow him to taper in November.

“I think it just barely clears Powell’s hurdle of ‘decent,'” said Bank of the West economist Scott Anderson. A November taper announcement remains the best path to the Fed.

However, others and he said it wasn’t a lock.

According to Fed officials, “The Fed was looking for a large number so their decision last month to start tapering would be easy.” Northern Trust (NASDAQ:) economist Carl Tannenbaum. “The November 2-3/3 discussions may prove more challenging. The market will need to handle additional uncertainties.”

Since December, the Fed has bought $120 billion in Treasuries (and housing-backed bonds) each month to stop the economic fallout of the coronavirus pandemic. It had also promised that it would continue to do so until “substantial additional progress” towards its goal of 2% inflation or full employment.

Prices have risen since then because of the increased demand for the economic reopening. Fed forecasts, and other estimates suggest that inflation will remain well above 2% throughout the year as supply issues continue.

More of the labor market’s deep holes left after the pandemic shut downs are being filled. The U.S. had about 10 million less jobs in December than before the pandemic. Friday’s September report showed that the gap was only 4.97 million.

(Graphic: U.S. labor market’s deep pandemic hole, https://graphics.reuters.com/USA-ECONOMY/JOBS-FED/zjvqkeqkyvx/chart.png)

It is unclear how fast policymakers will move to increase interest rates above their near-zero levels once they have stopped buying bonds. The interest rate futures trader bets that policymakers will increase rates before the year 2022.

Fed policymakers stated that they wouldn’t do so unless full employment is achieved, although inflation appears to be stable for a while.

The big question here is whether COVID-19 case numbers will continue to decline as they have in recent weeks or if there’s enough of a rebound in winter that it can spook people and impede recovery.

The path of inflation is another. Fed policymakers anticipate that it will subside in the next year, but if not the central bank could be forced to take the difficult decision to increase interest rates prior to the labor market has fully recovered.

The third factor is the amount of labor market recovery.

In September, Fed policymakers expected that unemployment would fall to 4.8% by year’s end. Friday’s report confirmed this prediction.

Aneta Markowska (NYSE: Jefferies) wrote in a note that given the fluctuation in workers choosing to join the labor market, it is not clear if this will’stick.