Fed’s Bullard says he’s patient on taper

Washington (Nov 4)   Low inflation allows the Federal Reserve to be patient before scaling back its bond-buying program, and fears that the program will lead to a 1970s-style inflation outbreak are overblown, the president of the St. Louis Fed Bank said on Monday.

A 70s-style inflation “is not coming,” per James Bullard, the regional Fed official.

U.S. stocks moved higher after Bullard spoke.

The S&P 500  was up 1.3 points to 1,763,.

Bullard, who is a voting member of the Fed's policy-making committee this year, said the decision to reduce, or taper, the $85 billion-a-month asset purchase plan would be based on the data and made on a meeting-by-meeting basis.

The Fed has one more policy committee meeting this year in mid-December. Many economists think the central bank will wait for 2014 before acting, but that is not a universal view. Read: The next pain trade involves a March taper.

The Fed’s policy statement after its last meeting late last month didn’t take a December move off the table, economists said.

Bullard made some comments on CNBC that could be interpreted as supporting a later taper, and others that seemed to back a move this year.

On the one hand, the St. Louis Fed president said the central bank does not have to be in a “hurry” to taper because of low inflation readings. He said he wants to see “tangible evidence” that inflation is moving toward 2% before tapering, and that he is also willing to be patient because the Fed has more room on its balance sheet.

The Labor Department reported last week that consumer Inflation in the 12 months to September slowed to a 1.2% pace from 1.5% in the 12 months through August, marking the lowest annualized increase since the spring.

On the other hand, Bullard dismissed the argument that the low participation rate in the labor market was signaling a weaker jobs market than the headline unemployment rate suggested. And he said that the Fed could not wait until Republicans and Democrats settle their differences over fiscal policy before tapering.

“It looks like they will be bickering in Washington for a long time to come. So I don’t think we can afford to wait until the political waters are completely calm before we decide to make a decision,” Bullard said.

Bullard said there has already been substantial progress in the labor market and cautioned that the October job report, to be released this Friday, will be “hard to interpret.”

The Fed will have another job report next month before they meet, Bullard noted.

Bullard said he was encouraged by forecasts for third-quarter economic growth.

If the holiday season is strong, “you actually put together a pretty good string of quarters, he added.

The 16-day federal government shutdown won’t have much impact on growth, he predicted.

In a separate speech overnight from Australia, Dallas Fed President Richard Fisher said that fiscal policy has damaged the recovery.

“The inability of our government to get its act together has countered the pro-cyclical policy of the Fed,” Fisher said.