WASHINGTON — St. Louis Federal Reserve Bank President James Bullard said Friday that if 2013 generates another 0.7 point improvement in the unemployment rate, the Fed can consider a "pause" in its direct purchase quantitative easing.
But economic performance, not dates, will determine Fed policy, he said in an interview on CNBC.
His remarks, from San Diego, come after the Federal Open Market Minutes published Thursday afternoon what the markets generally viewed as an unsettlingly premature discussion that included possibly ending quantitative easing as before the end of this year. Several members, the minutes said of the mid-December FOMC meeting, "thought that it would probably be appropriate to slow or to stop (QE) purchases well before the end of 2013."
"Why are we talking about dates?," Bullard asked. "The idea is to have state-contingent policy. This depends on the economy."
Bullard is an FOMC voter this year.
Instead, the discussion should be centered on whether "the economy performs well in 2013" and if so, "the Committee will be in position to think about going a pause with its balance sheet policy."
If the economy does not do well this year, he said, "then the balance-sheet policy will probably continue into 2014."
"That's the beauty of doing it this way instead of doing it by a fixed date," Bullard added. "And I think that that's a big advantage of this policy over the previous policy that we had. So I think the date thing is a little bit out of line."
He called the day's new jobs numbers "reasonably good" and "consistent with an economy that's growing at about 2%, maybe a little better. And hopefully we'll see some improvement on these numbers in 2013."
Since September's QE decision, he said of the unemployment rate, "I don't think there's been enough improvements" to consider altering policy. Meanwhile, the Fed this year is embarked on an even more accommodative policy by adding direct purchases of Treasury securities.
"I think the quantitative easing we're doing now — starting right about now — is more than we were doing with Operation Twist," he said. "I think outright purchases are probably more effective than the Twist program so I think it's a little bit easier policy in that sense."
Bullard said his outlook is for unemployment to "continue to tick down through 2013" at about the same pace as the last three years, at about 0.7 point a year.
"If we got that this year we'd be done at 7.1% by the end of the year, something like that. That would be probably substantial improvement and the committee could think about removing accommodation on the balance sheet side of the policy at that point."
Not everyone on the FOMC agrees, he said. "A lot of people are predicting unemployment's going to hang up there and so then we'll have to make a different judgment."
Nevertheless, "If you got down close to 7% then you're within a half a point of your 6.5% on the interest rate side and I think clearly the intention is to pull back balance-sheet policy sometime before you would start thinking about raising the rate," Bullard said.
The fiscal policy wrangling on Capitol Hill is about what the Fed expected he said and "so far has played according to script."
On the debt limit, which he called "a dangerous thing to fight over," the hope is for "a better and smoother resolution this time" than in 2011.
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