By Marc Jones
LONDON May 23 A senior U.S. central banker
sought to give reassurance on Thursday that the Fed is in no
hurry to start winding down its economic stimulus after comments
by chairman Ben Bernanke sent stock markets tumbling.
James Bullard, president of the Federal Reserve Bank of St.
Louis, said on Thursday he did not think the Fed was "that
close" to starting the process of winding down its support
although it was the likely next step if the economy continued to
improve and inflation picks up.
Share prices around the world fell sharply after Bernanke
said on Wednesday that the Federal Reserve may start to trim its
bond purchases at one of its next policy meetings.
Bernanke also said the Fed needed to see more signs of
recovery in the U.S. economy before scaling back its stimulus,
but investors focused less on those comments.
Bullard, speaking in London, said the U.S. economy was
improving but he would like to be sure inflation was heading
back towards target before the Fed started winding down its
"I think the chairman, as he always does, said the right
thing which is it depends on the data," Bullard, a current Fed
voting member, said.
"Even if we do taper it would still be a very aggressive
pace of purchases because we would only be moderating the rate
by a small amount ... I don't think we are actually that close
at this point to talking about an exit."
A European policymaker also said on Thursday it was not yet
time for either the Fed or the European Central Bank to consider
reining in support for their economies.
"I think the policy followed by the ECB as well as, for
instance, the Fed in the United States is appropriate for the
current economic situation, but of course always with the
perspective that one has to adjust to further developments," ECB
Governing Council member Ewald Nowotny said in Vienna.
Many financial markets have hit record or long-term highs in
recent months as the constant drip feed of central bank stimulus
has driven investors into a frenzy.
Bullard told reporters after his speech that as long he was
sure inflation was again heading in the right direction he would
be happy with reducing the buying by $15 billion-$20 billion a
"What I would like the committee to do is to think about
relatively small moves that more-or-less correspond to a 25
basis point Federal Funds rate move in normal times, so we are
not in a position where we are having to make decisions about
cutting the whole programme in half or bringing the programme to
a halt in a short period of time."
He also laid out the step-by-step sequence he would like to
see the Fed adopt beyond that.
"I think the basic structure of the exit strategy will stay
about the same; which is first allow a run down of the balance
sheet, later increase the interest payment on reserves and only
after that consider selling assets."
He added: "And it is a little unclear at the moment if the
committee wants to push out the dates for that (selling of