The Federal Reserve will not hastily withdraw its policy stimulus for the economy, a senior central banker said on Thursday, while another stressed that it could adjust the pace of bond purchases both up or down according to the data.
Seeking to temper investor concerns that the Fed was quickly moving to end its ultra-easy monetary policy, St. Louis Fed President James Bullard said in London that he did not think the Fed was "that close" to taking any such decision.
"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," he said.
Global financial markets were rocked by remarks from Fed Chairman Ben Bernanke on Wednesday that the central bank could begin scaling back its current $85 billion monthly pace of bond purchases in the next few meetings, depending on the data.
Bernanke also stressed the perils of prematurely withdrawing policy stimulus, and minutes of policymakers' discussions earlier in May released on Wednesday showed they wanted more evidence of the U.S. economy improving before agreeing to taper.
But those sentiments got less traction with investors, who took fright at the mild suggestion that the Fed's unprecedented efforts to boost U.S. hiring may be nearing an end, highlighting the communication challenge that officials face.
John Williams, head of the San Francisco Fed, separately told Bloomberg News in an interview the Fed could theoretically begin to curb its bond buying if the data improved, and then ratchet it back up if the economy subsequently softened.
"Even if we do adjust downward our purchases, it doesn't mean we're now in some autopilot of moving in the same direction," Williams told Bloomberg, which conducted the interview on Wednesday in San Francisco.
"You could even imagine a scenario where we adjust it downward based on good data and then adjust it back" if the economy weakened, he said.
The Fed has held interest rates near zero since late 2008 and more than tripled the size of its balance sheet via massive bond purchases, which it vows to maintain until it has seen a significant improvement in the outlook for the labor market.
The jobs picture has improved somewhat, after better than expected readings on monthly employment, but the jobless rate was 7.5 percent in April, which remains historically high.
Bernanke also cautioned the U.S. economy was still being restrained by headwinds caused by federal tax hikes and government spending cuts, and urged Republican and Democratic leaders in Washington to strive for a long-term budget deal.
A report released on Thursday by New York Fed staff economists found that U.S. GDP growth should rise to 3.25 percent next year as this fiscal drag faded.
That will help bring down the unemployment rate by the end of 2014 to 6.5 percent, the level at which the Federal Reserve has said it will begin to consider raising interest rates.
(Reporting by Marc Jones in London; Writing by Alister Bull; Editing by Andrea Ricci)