Fed’s Bullard Focuses on Economy Not Dates for Change

One day after the Federal Reserve put forth dates at which it might end $85 billion a month of bond purchases, a Fed policy maker instead described the economic conditions that may warrant a halt to the policy.

“Why are we talking about dates?” Federal Reserve Bank of St. Louis President James Bullard, who votes on the policy-setting Federal Open Market Committee this year, said in an interview with CNBC television. If unemployment falls near 7 percent it could prompt an end to the policy, he said.

Fed officials are debating when to halt their $85 billion a month of mortgage-bond and Treasury purchases. The buying program was designed to boost an economy that generated 155,000 jobs last month and saw the unemployment rate at 7.8 percent, according to a Labor Department report today.

“Several” members of the Federal Open Market Committee said it would “probably be appropriate to slow or stop purchases well before the end of 2013,” according to minutes of their Dec. 11-12 meeting released yesterday. A “few” were willing to let the program run to the end of the year while “a few others” didn’t give a time frame.

Bullard said the future of bond purchases should hinge on the performance of the economy. He said he sees the possibility that U.S. unemployment may drop to 7.1 percent by the end of this year, which could warrant halting the program.

“I think that unemployment will continue to tick down through 2013,” Bullard said. A 7.1 percent rate “would probably be substantial improvement” in the labor market, he said, referring to the Fed’s goal for halting its open-ended monthly purchases.

Contingent Policy

“The idea is to have state-contingent policy,” Bullard said.

At the FOMC’s December meeting, the committee ceased linking its outlook for its target interest rate to the calendar, and instead specified the state of the economy, that would prompt an increase.

Unemployment falling to 6.5 percent or the outlook for inflation rising to 2.5 percent would prompt consideration of raising rates, the FOMC said. They provided no such thresholds for ending their bond purchases.

Boston Fed President Eric Rosengren proposed in a November speech that the central bank should continuing buying bonds until the unemployment rate falls to 7.25 percent.

Fed presidents rotate voting on monetary policy, with Bullard and Rosengren scheduled to join the committee at the FOMC’s January 29-30 meeting. Also joining the committee are Chicago’s Charles Evans, who led the campaign to link interest rates to economic conditions, and Kansas City’s Esther George.

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