Fed's Bullard: Initial Tapering Would Be By Moderate Amount

LONDON — St. Louis Federal Reserve Bank President James Bullard said Thursday that he would not like to see the Fed begin scaling back its bond buying until inflation gets closer to its 2% target and said that initial tapering would likely be "moderate."

Bullard, a voting member of the Fed's policymaking Federal Open Market Committee this year, said the Fed has "room to maneuver" given that its balance sheet is smaller than other major central banks.

The Fed is currently buying $85 billion per month in Treasury and mortgage backed securities — a $1 trillion annual pace that is rapidly growing a Fed balance sheet that already exceeds $3 trillion.

Bullard said it is unclear how long the FOMC may decide to delay asset sales when it reviews its "exit strategy" as he responded to audience questions following a speech to the Official Monetary and Financial Institutions Forum.

Bullard said the economy has not gotten back to full employment as much as he expected, but noted that the unemployment rate has come down and said it could well reach the FOMC's 6.5% threshold next year. However, he said the FOMC won't necessarily raise the federal funds rate when that threshold is reached, especially if inflation remains well below target — 1% in the most recent PCE year-over-year reading.

For his part, Bullard said he is "nervous about the fact that inflation is low" and "trending down." He said he would like to see inflation "get back closer to target before start tapering."

Later, he reiterated that he "would like to see some evidence that (a rebound in the inflation rate) is occurring before we start tapering..."
     On the other hand, Bullard said "unemployment will continue to improve" and "will be an issue for the FOMC going forward."

When the FOMC does begin scaling back, he said it would "only moderate by a small amount."

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER