Fed officials criticize, explain taper delay
By Jonathan Spicer and Steven C. Johnson
NEW YORK (Reuters) - An outspoken Federal Reserve hawk warned on Friday that the U.S. central bank had harmed its credibility by delaying a highly anticipated reduction in monetary stimulus this week, but another official argued it had been the right thing to do.
Policymakers hit the speech circuit as financial markets continued to puzzle over Wednesday's shock decision by the Fed not to scale back its massive bond-buying program after allowing the impression over the summer that it would do so.
Kansas City Fed President Esther George, the lone dissenter on Wednesday, said she had been "disappointed" by the decision not to begin normalizing policy after an unprecedented period of ultra-easy U.S. money that has already lasted five years.
"The actions at this meeting, and the expectations that have been set relative to how markets were thinking about this, created confusion, created a disconnect," said George. She has dissented at every Fed meeting this year out of concern its policies could foster future asset bubbles and inflation.
St. Louis Fed chief James Bullard, defending the decision, said low inflation meant the central bank could be patient in deciding when to act, although the prospects for tapering would pick up if payroll and unemployment data brightened further.
Speaking with reporters afterwards, Bullard said the Fed's decision to sit tight "enhanced our credibility in the sense that it showed we really are paying attention to data and not on some automated program to cut QE (quantitative easing) to zero."
Fed policymakers could still decide to start reducing bond purchases when they meet again in late October, Bullard said, if inflation and unemployment data warrant it.
A Reuters poll of economists found that a majority of those surveyed felt the Fed failed to communicate clearly in the weeks before Wednesday's decision to stand pat. Continued...