A voting member of the Federal Reserve has said that the Fed could start reducing its bond purchases as early as the next meeting in October, if the economy shows improvement.
James Bullard, President of the Federal Reserve Bank of St. Louis, told Bloomberg television yesterday that it was a “close decision” not to slow the $85-billion-a-month in bond buying at the September 17-18 meeting. He said stronger data before the October 29-30 meeting could make Fed officials “comfortable with a small taper in October.”
The bond purchases are intended to keep long-term interest rates low, encouraging more borrowing, spending and growth.
Bullard also noted that not having a news conference scheduled next month does not represent an obstacle to Fed action at the October meeting. The Fed could easily schedule one, if it felt it needed to explain a decision such as voting to reduce the purchases.
In a separate interview later with Fox Business , Bullard stressed that he was not predicting that the Fed would move to cut the bond purchases at its October meeting. He said that it could happen if the data shows the economy has strengthened.
But he said that an argument could also be made that the Fed panel will not have that much additional information by then to change its mind.
Bullard rejected criticism that the Fed’s action to delay a move in September had confused markets.
“We said it was a data dependent decision. It turned out to be a data dependent decision,” Bullard told Fox Business.
Bullard also gave a speech in New York in which he said the Fed’s action this week shows its basing its decision on incoming data, not a set schedule.
During the speech, Bullard noted that financial markets have reacted sharply to the Fed’s comments about the bond purchases, showing critics are wrong that the Fed is having little impact.
Stocks plunged after Fed Chairman Ben Bernanke indicated in June that the Fed could slow them later this year, if the economy improved. And when the Fed surprised investors this week by not acting, the stock market rallied and hit new highs on Wednesday.