By Jonathan Spicer
NEW YORK Feb 21 The Federal Reserve could
reduce its asset purchases on par with the level of improvement
in the troubled U.S. labor markets, a top Fed official said on
Thursday, offering another take on a question that has financial
markets on edge.
St. Louis Fed President James Bullard, a voting member of
the Fed's monetary policy committee this year, said the
currently low inflation readings may give the Fed some leeway to
continue its quantitative easing program longer than it would
The U.S. central bank is buying $85 billion in bonds per
month to lower longer term borrowing costs, encourage investment
and spending, and boost the stop-start U.S. economic recovery.
It has repeated it will buy the bonds until the labor market
outlook improves substantially.
But "substantial labor market improvement" does not arrive
suddenly, Bullard said in a lecture at New York University.
"This suggests that as labor markets improve somewhat, the pace
of asset purchases could be reduced somewhat, but not ended
Markets are abuzz with speculation that the Fed could taper
or halt the bond buying, known as QE3, earlier than expected.
That buzz amplified on Wednesday when minutes from the
central bank's January policy meeting showed a number of Fed
officials think QE3 might have to slow or stop before the
desired pickup in hiring is achieved, because of the costs and
risks that the program might bring.
Bullard acknowledged that the size of the Fed's balance
sheet, now at more than $3 trillion, may complicate or prevent a
"graceful" exit from the very accommodative policies it has
adopted to boost the U.S. recovery from the worst recession in
As it stands, the Fed is buying $45 billion in Treasuries
and $40 billion in mortgage-backed securities (MBS) per month in
its third round of quantitative easing. It has also pledged to
keep interest rates near zero until the unemployment rate drops
to 6.5 percent, from 7.9 percent now, as long as inflation
expectations remain contained.
Earlier on Thursday, government data showed that consumer
prices were flat. That could give a boost to those at the Fed
pushing to continue aggressively buying bonds.