ST. LOUIS (Reuters) - The U.S. Federal Reserve has yet to decide how it will eventually tighten monetary policy, and either interest rate hikes or asset sales could lead the way, a top Fed official said on Tuesday.
In an interview with Reuters Insider, St. Louis Federal Reserve Bank President James Bullard said it was even possible the Fed would simultaneously raise rates and sell bonds it had accumulated.
"The debate about how to exit this loose, uber-easy monetary policy is again coming to the fore," he said. For the Insider interview, click on: link.reuters.com/kyv88r
With an economy on track for recovery despite what may be a somewhat slower-than-expected first quarter, policy makers will be discussing how soon and how fast to pull back the massive support put in place to pull the economy out of recession and nurse the recovery, he said.
“I would see this as kind of high tide. The question is how to get the tide to recede a little bit,” Bullard said.
“The question is should you start with balance-sheet issues or should you start with interest rates, and there’s definitely views on both sides of that,” he added.
The Fed cut rates to zero in December 2008, and then bought $1.7 trillion in longer-term Treasuries and mortgage-related debt. When the recovery faltered last year, it initiated $600 billion more in Treasuries buying, a program that draws to a close at the end of June.
Fed Chairman Ben Bernanke in speeches last year indicated he favors raising interest rates as the first step toward the exits.
Bullard, not a voter on the Fed’s policy-setting panel this year, said on Tuesday the U.S. central bank would likely pause for “a few meetings” once it wraps up its current bond-buying program.
“This would be a pause that involves both the balance sheet policy and the interest rate policy, and you’d stay there for a few meetings,” he said. “But the presumption would be, if all goes well, that the next move would be toward ... a tighter policy.”
Asked about market expectations for Fed interest rate hikes, Bullard said it would not be unreasonable to expect a tightening of U.S. monetary policy to begin sometime in the winter of 2011-2012.
Editing by Andrew Hay, Gary Hill