By Sakari Suoninen and Edward Taylor
FRANKFURT, Sept 26 The Federal Reserve should
make itself more predictable about scaling back its massive bond
buying campaign, a top U.S. central banker said on Thursday,
acknowledging that it had confused markets by not tapering at
its meeting last week.
Fed Governor Jeremy Stein said he would have been
comfortable starting to reduce asset purchases at the Sept.
17-18 meeting, and that the decision to keep buying at an $85
billion monthly pace had been, for him, a "close call".
"But whether we start in September or a bit later is not in
itself the key issue - the difference in the overall amount of
securities we buy will be modest," he told a monetary policy
conference in Frankfurt.
"What is much more important is doing everything we can to
ensure that this difficult transition is implemented in as
transparent and predictable a manner as possible. On this front,
I think it is safe to say that there may be room for
improvement," he said in prepared remarks.
The Fed's decision to stand pat on bond buying stunned
financial markets, which had anticipated it would begin to
slowly reduce the program, signaling the beginning of the end to
an unprecedented five years of ultra-easy monetary policy.
The Fed explained by pointing to the disappointing
performance of the U.S. economy in the second half of 2013,
while also noting the headwinds from restrictive U.S. fiscal
policy. These could worsen as leaders in Washington fight over a
deal to keep the government funded and lift the U.S. debt limit.
Investors are now focused on Fed meetings in October and
December, although some economists say the central bank could
hold fire until 2014 to make sure the U.S. economy has
decisively regained cruising speed.
Stein, who has talked about the risk of Fed bond buying
leading to asset bubbles, said that one way to reduce
uncertainty and accompanying market volatility would be to link
future tapering directly to economic data.
"My personal preference would be to make future step-downs a
completely deterministic function of a labor market indicator,
such as the unemployment rate or cumulative payroll growth over
some period," Stein said. "For example, one could cut monthly
purchases by a set amount for each further 10 basis point
decline in the unemployment rate."