| SAN FRANCISCO
SAN FRANCISCO Feb 7 The U.S. Federal Reserve
should scale back rather than abruptly end its massive
bond-buying stimulus once the labor market gets its legs, a
growing number of Fed policymakers say.
Chicago Federal Reserve Bank President Charles Evans, one of
the central bank's most aggressive doves, became the latest top
Fed official to publicly embrace such a strategy.
"I believe we have tapered every asset purchase program that
we have done to date so it would seem a bit surprising if we
didn't do what we have done before," Evans told CNBC on Thursday
in a taped interview posted to its website.
In September of last year, the central bank launched an
open-ended bond-buying program, which it expanded in December
after a separate stimulus effort ran its course.
It is currently buying $85 billion a month in government and
mortgage-linked debt, and has said it plans to keep up the
purchases until it sees a substantial improvement in the outlook
for the U.S. labor market.
Evans said he believes the program will be needed for six
months to a year, but "if the economy picks up more quickly than
we're looking at, then we'll be very happy, and then we could
wind it down, we might taper it, we could stop sooner."
Many bond traders and economists believe a sudden halt in
the program could trigger a sharp rise in yields that would work
against the Fed's goals.
"The market has become so accustomed to the Fed being there
that their withdrawal on the purchasing side is going to be a
significant event," said Thomas Simons, an economist at
Jefferies & Co.
Tapering the purchases could also make it "easier to adjust
if the economy hits a few bumps in the road," said Mark Vitner,
a Wells Fargo economist.
Evans has said he would need to see the economy adding more
than 200,000 jobs a month for about six months to be sure the
labor market is on sound footing; other officials have
identified an unemployment rate of 7.25 percent or 7 percent as
thresholds that would indicate enough labor market improvement.
The U.S. economy has created an average of 177,000 jobs a
month over the last six months, while the unemployment rate has
only edged down to 7.9 percent from 8.1 percent.
Despite the broad range of views on when a policy change
might be needed, the idea of tapering the purchases appears to
have the support of Fed officials at both ends of the policy
spectrum, as well as its middle.
Last week, St. Louis Fed chief James Bullard, viewed as a
policy centrist, said the central bank should slow rather than
suddenly halt its purchases once there is enough improvement in
the employment picture to justify a change in policy.
Atlanta Fed President Dennis Lockhart, who supports the
third round of quantitative easing called QE3, has also said the
Fed could taper its purchases when the time is right.
Even Dallas Fed President Richard Fisher, an avid opponent
of the bond-buying program, is on board.
"I don't want to go from wild turkey to cold turkey," he
said on Monday.