Fed in no rush to cut bond buys, top policymakers say

Mon Nov 4, 2013 5:54pm EST
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By Ann Saphir and Tim McLaughlin

SAN FRANCISCO/BOSTON (Reuters) - The Federal Reserve should scale back its asset purchases only when the U.S. economy shows clearer signs of improvement and even then it should act slowly, one senior central banker said on Monday, while two others stressed there is no need to rush.

The comments suggest the U.S. central bank will be propping up the economy and financial markets for some time to come, and they underscore Fed Chairman Ben Bernanke's repeated promise that stimulus will not be reduced according to a set timeline but rather in response to economic developments.

The three Fed officials, who are all able to cast votes on monetary policy this year, did not say exactly when they believe the stimulus should be withdrawn - a question that is front and center for investors now that the Fed's third round of quantitative easing (QE3) has entered its fourteenth month.

Governor Jerome Powell called the timing "necessarily uncertain" because it depends on the strength of the recovery, while Boston Fed President Eric Rosengren pointed to the central bank's balance sheet as a reason to be patient as it heads into a policy meeting next month.

"What it's reasonable to expect us to do is to be transparent and to move gradually when it is time to withdraw accommodation, or even to begin reducing the pace at which we add accommodation and go slowly in doing that," Powell told the Asia Economic Policy Conference in San Francisco.

The Fed should also "hold to our obligation to only do that as demand does strengthen in the United States," he said. "Those are the things that we can do and we must do, should do."

The Fed is buying $85 billion in long-term assets each month to boost investment and hiring by pushing down long-term borrowing costs. Last month the Fed stuck to that program, saying it needed more evidence of stronger growth before reducing stimulus. Both Powell and Rosengren voted with the 9-1 majority.

Given a gradual drop in unemployment since QE3 was launched and worries over a swelling Fed balance sheet - now at a record $3.8 trillion - investors have been speculating about when the Fed will finally move.   Continued...

James Bullard, President of the St. Louis Federal Reserve Bank, speaks during an interview with Reuters in Boston, Massachusetts August 2, 2013. REUTERS/Brian Snyder