Federal Reserve Bank of St Louis President James Bullard, a voter on policy this year who has backed record stimulus, said the US Federal Reserve may make a small cut to bond purchases next month after its narrow decision this week not to reduce accommodation.
“That was a borderline decision after weaker data came in,” Bullard said on Friday on Bloomberg Television’s Bloomberg Surveillance with Tom Keene and Sara Eisen. “The committee came down on the side of: ‘Let’s wait.’”
Bullard called next month a “live meeting,” because “it’s possible you could get some data that change the complexion of the outlook and could make the committee be comfortable with a small taper in October.”
The US Federal Reserve on Wednesday unexpectedly refrained from reducing its US$85 billion in monthly asset purchases, saying it needs to see more signs of sustained labor market gains.
Fed Chairman Ben Bernanke said on Wednesday the central bank would decide on whether to taper purchases based on “what’s needed for the economy.”
The Fed will be able to weigh this month’s jobs report and revisions of prior months, as well as updated housing reports at its Oct. 29 to 30 meeting, Bullard said in a separate interview at Bloomberg’s headquarters in New York.
“This was a very close call so maybe the information would come in in a way that would change the complexion” of the outlook, he said.
Markets should not have been surprised by the decision because Federal Open Market Committee members have repeatedly said the decision to slow, or taper, would be “data dependent,” Bullard said.
“I’m a little dismayed at those in markets that are saying they’re surprised by this,” Bullard said.
The Fed said that, “if the economy was going to improve in the second half of the year, and if we saw that improvement, we would taper,” he said.
Kansas City Fed President Esther George, who has consistently dissented against additional stimulus, said the central bank missed an opportunity to begin reducing bond purchases because markets were primed for such a move.
“Costly steps had been taken to begin to prepare markets for an adjustment in the pace of asset purchases,” George said on Friday in a New York speech. “This week’s decision by the Fed to taper expectations and not bond buying surprised many, disappointed some like me.”