RICHMOND, Virginia (Reuters) - Signs of an improving labor market justify further reductions in monthly bond purchases by the Federal Reserve, a senior official at the U.S. central bank said on Friday.
Richmond Fed President Jeffrey Lacker told journalists that a report showing weak U.S. hiring in December appeared to be “aberrational.”
“It would take a very significant change in the outlook for me to support not tapering, and I don’t think the data we’ve seen so far are close to that,” Lacker said following a speech to risk managers.
He said a variety of labor market indicators, including the level of employment and the number of job openings, paint a picture of the sustained improvement in the job market outlook sought by the Fed.
“They all line up,” Lacker said.
The Fed announced last month it was reducing monthly bond purchases to $75 billion from $85 billion. The program has aimed to spur a faster recovery from the 2007-09 recession.
Investors expect the central bank will continue reducing monthly purchases throughout 2014, though their conviction is being tested by data released this month that showed the economy adding just 74,000 jobs in December, less than half the pace of the prior month.
A continued slowdown in job growth could dissuade the Fed from further winding down its bond buying stimulus. Still, many analysts think last month’s weak hiring will prove temporary, and that U.S. economic growth will pick up substantially this year.
While Lacker thinks the U.S. job market is strong enough for the Fed to dial back its support for the economy, he is less optimistic on the outlook for the broader economy. In his remarks to the risk managers, he said economic growth this year would likely be closer to 2 percent than to 3 percent.
Lacker also weighed in on the debate in policy circles over how the Fed should react to any signs of asset bubbles, saying it would be a mistake for policymakers to let worries over bubbles interfere with their inflation mandate.
“Deflecting monetary policy from its price stability mission to make up for market imperfections ... seems to me misguided,” he told reporters.
Reporting by Jason Lange; Editing by James Dalgleish and Chizu Nomiyama