ATLANTA — While not totally ruling out an Oct. 30 reduction in bond purchases by the Federal Open Market Committee, Atlanta Federal Reserve Bank President Dennis Lockhart said Thursday the federal government shutdown makes that a "more ambiguous" time for the Fed's policymaking body to "taper" its "quantitative easing" program.

Lockhart, speaking to reporters at an Atlanta Fed conference on the labor market, said the longer the shutdown lasts and blacks out the usual flow of official economic data, the harder it will be for the FOMC to decide to taper at the end of this month.

Although he is not an FOMC voter this year, Lockhart said the lack of government data caused by the budgetary impasse and resulting shutdown of federal agencies will make him "more cautious."

He strongly suggested a tapering move is more likely at the FOMC's December meeting, and he indicated it would be preferable to stay within the "later this year" timetable which Fed Chair Ben Bernanke laid out in June. But he emphasized that action to reduce the $85 billion monthly asset purchases "will depend on the data."

The Labor Department confirmed earlier Thursday that it will not be releasing its September employment report Friday morning, as scheduled. And numerous other sets of data will be delayed until the government agencies which collect and release the data reopen. (Weekly unemployment claims, EIA and Fed data are the exceptions and are being released on schedule.)

"Having less data is not helpful in gauging where the economy is and where it's going," he said in response to a question from MNI. "So it will tend to make me somewhat more cautious."

"Secondly, I think the timing of the government shutdown and the data the government produces makes the October meeting potentially even more ambiguous (as to) timing," Lockhart continued. "The timing of the October meeting could be more ambiguous in terms of the picture we can comfortably or confidently paint at that time."

"I don't want to rule it out," Lockhart said, adding that the October FOMC gathering will still be "a live meeting in every respect." But he added that the shutdown "compounds the murkiness of the situation."

Asked further by MNI whether he and his colleagues feel any obligation to stick by Bernanke's conditional June commitment to begin scaling back bond purchases "later this year," Lockhart said that "clearly when we communicate in that way and try to shape expectations it's a good thing to follow through."

However, he emphasized that the start date for tapering "is going to depend on how the economy is performing."

Lockhart declined to say outright that an October tapering is "unlikely," but said "if this (shutdown) lasts several more days ... or is merged into the debt ceiling debate so both the continuing resolution and the debt ceiling come together" or if the government shutdown lasts "a week or two weeks" then "by the end of October it we will be looking at a very ambiguous decision."

A tapering move before the end of the year is "still conceivable." And he said Bernanke's "June framework is still in place, still operative."

Beyond the question of timing, Lockhart declined to say specifically what his economic tests for tapering will be.

"It's going to depend entirely on the performance of the economy and the outlook for the economy," he said. "I can't say at this point."

The FOMC's decision not to reduce bond buying on Sept. 18 has been "vindicated by developments, specifically the shutdown of the federal government and the potential impact that might have on the economy," Lockhart said.

"We avoided a potentially very awkward situation of reducing stimulus just on the eve of what now has developed," he continued. "It strikes me as quite a wise decision."

Lockhart said the government shutdown will have a "measurable" impact on fourth quarter growth, but didn't quantify the effect.

He said there has been "a softening of financial conditions" since the FOMC meeting, but seemed dubious as to whether that softening will "offset" the negative impact of the shutdown.

"The sooner this episode is concluded the better," he said.

In other comments, Lockhart called Fed Vice Chair Janet Yellen, who is seen as the likely successor to Bernanke next year, "a very valued colleague" with whom he "can work closely."

Earlier, in opening the conference, Lockhart said a key question for policymakers is whether monthly non-farm payrolls continue to average around 180,000 as they have done over the past 12 months or continue the more recent slowing trend near 140,000 per month.

He admitted that, for him, "getting a fix on employment conditions" and "defining the problem accurately for policy purposes is extremely challenging."

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

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