Fed's Bullard plays down odds of imminent easing

WASHINGTON Thu Aug 23, 2012 4:52pm EDT

President and CEO of the Federal Reserve Bank of St. Louis James Bullard looks on during an interview at the Federal Reserve Bank of St. Louis June 8, 2011. REUTERS/Peter Newcomb

President and CEO of the Federal Reserve Bank of St. Louis James Bullard looks on during an interview at the Federal Reserve Bank of St. Louis June 8, 2011.

Credit: Reuters/Peter Newcomb

WASHINGTON (Reuters) - A Federal Reserve official on Thursday leaned against the impression that the U.S. central bank was locked into easing monetary policy at its meeting next month, noting that economic data had improved in recent weeks.

Minutes of the Fed's July 31-August 1 meeting released on Wednesday had highlighted strong support among policymakers for more action. But St. Louis Federal Reserve President James Bullard told CNBC television that the economic outlook had brightened since that meeting.

"I do think that the minutes are a bit stale because we have some data since then that has been somewhat stronger," Bullard, who will be a voting member of the policy-setting committee next year, said in an interview.

U.S. growth remains tepid but July's employment report showed solid job creation, and recent readings on industrial production and retail sales were a bit better than expected.

Bullard, in a two-hour appearance on CNBC, also voiced unusually blunt criticism of Europe's response to the sovereign debt crisis in the euro zone, saying he was "pessimistic" on the region's capacity to take robust action. But he played down the impact of Europe's problems on the United States so far.

The Federal Open Market Committee meeting's minutes noted that many Fed policymakers judged another round of easing would be warranted "fairly soon" unless there was a significant improvement in the U.S. economy.

Fed Chairman Ben Bernanke is set to deliver a highly anticipated speech next Friday at the annual central banking conference in Jackson Hole, Wyoming, which may yield clues on whether the Fed will ease policy at its upcoming September 12-13 meeting.

VIEWS SPLIT

Analysts believe it's likely there will be a change in September in the wording of the forward-looking language offered by policymakers, which currently says that near-zero Fed interest rates will be kept exceptionally low until late 2014.

But they are less certain that the recent run of data will provoke additional bund buying, on top of the $2.3 trillion in purchases already announced by policymakers.

Bullard said the Fed had deliberately been vague about when it might feel compelled to act, but made clear he was in the camp that believed the threshold for action was high.

"If we were to resume, which I think we will, 2 percent growth, maybe a bit stronger than that, unemployment ticks down ... that is not a great outcome, but to me that is a good enough outcome to keep us on hold," Bullard said.

The minutes' release spurred a revival in stock market fortunes on Wednesday and a reevaluation of the odds that the Fed would do a third round of so-called quantitative easing.

Characterizing the mood during the meeting at the beginning of the month, Bullard said it reflected nerves on the part of policymakers that they may need to act again.

"The tone of the discussions, for me anyway, was 'gosh things are not as good as we thought and it if continues to decelerate here, we're going to have to do something'," he said.

Still, he believed the probability of another round of easing was less than had been reflected in the pricing seen in financial markets over the summer.

"Going along at this slow pace is not enough to justify gigantic action," he said. "I'd like to see...some deterioration or indication we're going to slide down further," in order to support additional easing.

The Fed has also caught political flak for its massive bond purchase program and Republicans have included wording in their 2012 election platform to subject it to an annual audit.

However, Bullard said the Fed's goal was to "try to be fair to all sides in this and not get too involved" in the election.

(Reporting by Alister Bull; Editing by Chizu Nomiyama and Bernadette Baum)

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