Using thresholds instead of dates and open-ended outright purchases instead of "Operation Twist" turned monetary policy more effective, Federal Reserve Bank of St. Louis President James Bullard said Thursday.

"Open-ended outright purchases are a more potent tool" than "Operation Twist," Bullard told a banking forum in Mississippi, according to prepared text released by the Fed. The earlier program, he said "may not have been as effective as hoped."

The FOMC may use the unemployment rate, employment, hours worked, and Job Openings and Labor Turnover Survey (JOLTS) data to measure "substantial labor market improvement," its condition for ending its purchases of Treasury and agency mortgage-backed securities, Bullard suggested.

Also, the pace of purchases may need to be altered based on macroeconomic performance, he said. Inflation fears have been "unfounded" to date, but QE2 changed inflation and inflation expectations.

Finally, Bullard said, "The size of the balance sheet may complicate or prevent a graceful exit."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.