Federal Reserve Bank of St. Louis President James Bullard, a supporter of tapering bond purchases by the Fed, predicted stronger U.S. economic growth will push down unemployment to 6.2 percent in the fourth quarter.
"Many of the obstacles to faster growth have been dissipating," Bullard, who doesn't vote on policy this year, said today in Indianapolis, Indiana. "We expect more rapid growth, which should put additional downward pressure on unemployment."
The U.S. added 74,000 jobs last month, less than the most pessimistic projection in a Bloomberg survey, Labor Department figures showed today in Washington. The unemployment rate fell to 6.7 percent, the lowest since October 2008, as more people left the labor force.
"The current unemployment rate is substantially below the expectations at the time of the September 2012 decision to begin the current open-ended asset purchase program," Bullard said to the Indiana Bankers Association. "This is certainly one important aspect of the substantial labor market improvement the Committee was seeking in pursuing the program."
Long-term factors such as aging of the population account for most of the decline in labor force participation, Bullard said.
"We think that today's labor force participation rate is about right given observed demographic trends," he said.
The Fed last month trimmed its monthly bond purchases to $75 billion from $85 billion, taking the first step toward unwinding the unprecedented stimulus that Chairman Ben S. Bernanke put in place to help the economy recover from the worst recession since the 1930s.
Fed officials saw diminishing economic benefits from the bond buying program and voiced concern about risks to financial stability, according to minutes released this week.
Treasuries rose today as the payroll report eased concern the Fed will accelerate the pace of reductions in asset purchases. The yield on the benchmark 10-year Treasury note fell 0.09 percentage point to 2.87 percent at 12:51 p.m. in New York.
The central bank has said it will keep buying bonds until the outlook for the labor market has "improved substantially."
Bullard predicted inflation will reach 1.6 percent by the fourth quarter of this year, saying he is surprised by its current slow pace.
"Because inflation surprised to the downside in 2013, it remains a wildcard for the committee in 2014," Bullard said.
The personal consumption expenditures index, the Fed's preferred gauge, rose 0.9 percent in November from a year earlier, below the central bank's 2 percent objective.
