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
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.