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Fed not "that close" to winding down stimulus: Bullard

The Federal Reserve Bank of St. Louis' President and CEO James Bullard speaks during the "Hyman P. Minsky Conference on the State of the U.S
The Federal Reserve Bank of St. Louis' President and CEO James Bullard speaks during the "Hyman P. Minsky Conference on the State of the U.S

By Marc Jones

LONDON (Reuters) - A senior central banker sought to give reassurance on Thursday that the Fed is in no hurry to start winding down its economic stimulus after comments by chairman Ben Bernanke sent stock markets tumbling.

James Bullard, president of the Federal Reserve Bank of St. Louis, said on Thursday he did not think the Fed was "that close" to starting the process of winding down its support although it was the likely next step if the economy continued to improve and inflation picks up.

Share prices around the world fell sharply after Bernanke said on Wednesday that the Federal Reserve may start to trim its bond purchases at one of its next policy meetings.

Bernanke also said the Fed needed to see more signs of recovery in the U.S. economy before scaling back its stimulus, but investors focused less on those comments.

Bullard, speaking in London, said the U.S. economy was improving but he would like to be sure inflation was heading back towards target before the Fed started winding down its support program.

"I think the chairman, as he always does, said the right thing which is it depends on the data," Bullard, a current Fed voting member, said.

"Even if we do taper it would still be a very aggressive pace of purchases because we would only be moderating the rate by a small amount ... I don't think we are actually that close at this point to talking about an exit."

A European policymaker also said on Thursday it was not yet time for either the Fed or the European Central Bank to consider reining in support for their economies.

"I think the policy followed by the ECB as well as, for instance, the Fed in the United States is appropriate for the current economic situation, but of course always with the perspective that one has to adjust to further developments," ECB Governing Council member Ewald Nowotny said in Vienna.

GENTLE PROCESS

Many financial markets have hit record or long-term highs in recent months as the constant drip feed of central bank stimulus has driven investors into a frenzy.

Bullard told reporters after his speech that as long he was sure inflation was again heading in the right direction he would be happy with reducing the buying by $15 billion-$20 billion a month.

"What I would like the committee to do is to think about relatively small moves that more-or-less correspond to a 25 basis point Federal Funds rate move in normal times, so we are not in a position where we are having to make decisions about cutting the whole program in half or bringing the program to a halt in a short period of time."

He also laid out the step-by-step sequence he would like to see the Fed adopt beyond that.

"I think the basic structure of the exit strategy will stay about the same; which is first allow a run down of the balance sheet, later increase the interest payment on reserves and only after that consider selling assets."

He added: "And it is a little unclear at the moment if the committee wants to push out the dates for that (selling of assets)."

(Reporting by Marc Jones in London and Michael Shields in Vienna; Editing by Toby Chopra, Rut Pitchford)

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