The U.S. Federal Reserve's $600 billion asset purchase program could be trimmed by some $100 billion given the recovery in the U.S. economy, St. Louis Federal Reserve President James Bullard said on Tuesday.
He told an economic conference in Prague U.S. policymakers may not be willing or able to wait for all global uncertainties to be resolved before they begin normalizing their very loose monetary policy.
One of the things that I'm concerned about is that policy is so easy right now that we have to get started on the process of getting back to normal, because it will take a long time to get back to normal, Bullard told reporters on the sidelines of the conference.
When asked if he meant now, he said: Yes, we're still buying treasuries. We're feeding the fire at this moment.
He said however there seemed to be difference of opinion in the Fed on the speed of reversing monetary easing.
I think it could be on the order of $100 billion less than what we had initially thought, but I would leave that up to how the rest of the committee would want, Bullard told reporters on the sidelines of an economic conference in Prague.
He said he preferred a way of tapering off asset purchases, then stopping them for a couple of months and keeping the balance sheet steady before taking further measures.
Risks clouding the economic outlook include the turmoil in the Middle East and North Africa, the aftermath of the Japanese tsunami, the European sovereign debt crisis and the U.S. fiscal situation and possibility of a government shutdown, Bullard said in a speech in the Czech capital.
Because we are so accommodative right now, the FOMC may not be willing or able to wait until every single global uncertainty is resolved before we can begin normalizing policy, he said, referring to the policymaking Federal Open Market Committee.
Bullard, who is not a voting member of the Fed's policy setting panel this year, added: If we wait too long we will get a lot of inflation in the United States and around the world.
On the main global risks, he said that the most likely prospect was that they would be resolved without becoming global macroeconomic shocks.
GROWTH PROSPECTS IMPROVE
The Fed has kept short-term interest rates near zero since December 2008 and has bought more than $2 trillion in long-term securities to push borrowing costs down further and boost recovery from the 2007-2009 recession.
Bullard, seen as a centrist on the spectrum of supporters and opponents of aggressive Fed actions to boost the economy, said that the process of normalizing policy would still leave unprecedented policy accommodation on the table.
On Monday, top Fed officials said the U.S. economy still needed support from the Fed's bond buying program, which is slated to end in June, with some suggesting recent spikes in gas and food price are likely to be short-lived.
Bullard said in Prague that growth prospects remained reasonably good and had improved since last summer.
Anecdotal reports were more bullish, which showed profitable businesses with considerable cash and an improving outlook, he said, adding an improving economy 18 months post-recession was a strong positive.
As 2011 started we were about 18 months past the end of the recession, and that's about the kind of timing when I would expect the economy to pick up and start growing fairly rapidly.
But he said any failure to address the U.S. fiscal situation would pose a risk to U.S. and global recovery.
President Barack Obama's Democrats on Monday offered to cut another $20 billion from the U.S. budget in an attempt to reach a deal with congressional Republicans that would avert a government shutdown.
(Additional reporting by Jason Hovet; Editing by Ron Askew)