Federal Reserve Bank of St. Louis President James Bullard said policy makers haven’t committed to a specific month to end bond purchases even as it would take a significant shift in the outlook to alter the path of tapering.
“There’s a little bit of ambiguity around the notion of when the QE program ends,” whether in October, December or January, Bullard said today in a Bloomberg Television interview in Hong Kong with Betty Liu, referring to quantitative easing. “Sometimes you see in the markets different interpretations of that, and frankly the committee has not really talked about that.”
The central bank, at the same time, would probably change the path of reducing bond-buying only if the “economy was moving off track in a significant way from what we had previously expected,” Bullard said in a separate panel discussion today. U.S. Treasury yields rose last week after Fed officials indicated that interest rates over the next two years may rise faster than previously anticipated.
Fed Chair Janet Yellen said in a press briefing after last week’s policy meeting that borrowing costs could start rising “around six months” after ending monthly bond purchases. Atlanta Fed President Dennis Lockhart said on March 25 six months “is really a minimum, not a maximum.”
Bullard, who doesn’t vote this year on the Federal Open Market Committee, said in today’s interview that he doesn’t think “policy has really changed” and that Yellen’s six-month comment wasn’t that different from what financial-market participants were already expecting.
“This is not a calendar-based policy -- it’s a data-based policy,” Bullard said. “So this is just some kind of sketch or timeline that people have in their heads, but that doesn’t mean that that’s what the committee’s going to do. What we’re going to do is going to depend on the data.”
Speaking about changing the pace of tapering bond purchases, Bullard said in the panel at the Credit Suisse Asian Investment Conference that “it’s a big deal if the FOMC decides to alter that pace in either direction, so I think the committee would be very careful about playing that card.”
The FOMC in a post-meeting statement last week gave itself room to keep borrowing costs low by dropping a linkage between the benchmark interest rate and a specific level of unemployment.
“We know we’re not close to full employment, not close to an employment level consistent with our mandate, and unless inflation were a significant concern, we wouldn’t dream of raising the federal funds rate target,” Yellen said at the press conference.
In deciding how long to keep interest rates low, the committee will look at a “wide range of information,” including labor market conditions, inflation expectations and financial markets, she said. The Fed also reduced the monthly pace of bond purchases by $10 billion, to $55 billion.
The Fed is overhauling forward guidance after unemployment declined toward 6.5 percent, its previous threshold for a rate increase, faster than policy makers predicted.
Bullard, asked about the conditions for raising interest rates, said that “we’d have to make more progress on labor markets than we have so far.” The jobless rate of 6.7 percent is “pretty high by U.S. standards and it’s going to have to get better than that and other aspects of labor markets are going to have to improve,” he said on the panel.
Also, if inflation doesn’t return toward the target, “that’ll weigh as a factor on the committee,” which will also look at financial stability, Bullard said. The Fed has a 2 percent inflation goal.
The U.S. is in “good shape” to have economic growth of more than 3 percent for the remaining quarters in 2014 and may reach that pace for the full year, Bullard said in the interview. The unemployment rate is likely to dip below 6 percent by the end of the year, he said in the panel.
Bullard said during the panel that he sees the federal funds rate “at a sort of normal level in 2016.”
Bullard, who has called himself the “North Pole of inflation hawks,” has been viewed as a bellwether for investors because his views have sometimes foreshadowed policy changes. He published a paper in 2010 entitled “Seven Faces of the Peril,” which called on the central bank to avert deflation by purchasing Treasury notes. That was followed by a second round of bond buying.
Bullard joined the St. Louis Fed’s research department in 1990 and became president of the regional bank in 2008. His district includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.