By Alister Bull
WASHINGTON Feb 1 The U.S. economy is on track for a better performance this year and improving growth will put the Federal Reserve in a position to slow or halt its massive bond-buying program, a top central bank official said on Friday.
St. Louis Fed President James Bullard, who voted in favor of maintaining asset purchases at an $85 billion monthly pace at a Fed meeting this week, also said he favored tapering off purchases rather than calling them to a sudden halt.
"If we do get enough improvement in the labor markets, then we'll have had a good year and will be in a position to slow down or stop the purchases," Bullard told Bloomberg Television in an interview.
Data released earlier on Friday showed that 157,000 U.S. jobs were created last month, as expected, while the unemployment rate crept up to 7.9 percent from 7.8 percent.
However, the previous two months' payroll numbers were revised higher, and U.S. stock markets rallied on the news as investors bet that the nation's economy was strengthening, despite having shrunk slightly in the fourth quarter of 2012.
"I do think this idea of tapering is one that I like ... I wouldn't regard that as a tighter policy. I would regard that as just a slower pace of easing policy," Bullard said.
The Fed has held interest rates near zero since late 2008 and almost tripled its balance sheet to around $3 trillion through three rounds of bond buying, or quantitative easing, to support a U.S. recovery after a severe 2007-2009 recession.
In order to spur hiring at a faster pace, the Fed has said it will keep rates ultra-low until unemployment falls to 6.5 percent, provided inflation does not threaten to rise above 2.5 percent. Bullard said inflation was running below target.
FED NOW "EASIER"
He also said Fed policy, as well as the removal of some uncertainties connected with U.S. income taxes and of further strains in Europe, bode well for growth this year.
"I think that is why you've seen rallies in U.S. equities markets ... I also think that Fed policy is quite a bit easier right now, than it was six or nine months ago," Bullard said.
Minutes of the Fed's December meeting released last month showed that several policymakers wanted to slow or halt the purchases well before the end of 2013.
Bullard, who had opposed the third round of bond purchases when it was announced in September, said he voted to back its continuation at the most recent meeting, held on Tuesday and Wednesday, because it was a decision to keep policy steady.
"I felt that was probably the right thing to do at this meeting and so I was in agreement with the chairman and the majority in this case," he said.
However, he made clear that the central bank's 19-member policy committee continued to wrestle with quantitative easing.
Bullard also spelled out that there was still no consensus on providing financial markets with more clues on when the purchases will end, beyond Fed guidance that policymakers will look for a substantial improvement in the labor market outlook.
"I don't think we have any more agreement among members at this point," he said.
Some Fed officials favor adopting numerical economic thresholds to guide expectations of when buying will end. But Fed-watchers doubt the committee will be able to quickly come to a consensus over this matter, and it may prove impossible.