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Fed’s Bullard Eyes Potential Stimulus Cut as Labour Market Improves

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Fed’s Bullard Eyes Potential Stimulus Cut as Labour Market Improves

An improving labour market could warrant a cut to the Federal Reserve’s record stimulus program sooner than expected, according to Fed Bank of St. Louis President James Bullard.

The voting FOMC member acknowledged the strong pace of jobs growth over the past two months, a trend that could lead the central bank to pare back its $85 billion monthly bond buying program. The Fed has been buying US Treasuries and mortgage-backed securities since November 2008. The Fed has come under intense scrutiny for not shifting its stance on record stimulus, which has injected nearly $4 trillion into the financial markets in five years.

The US economy added 203,000 nonfarm payrolls in November, following a revised 200,000 gain the prior month, according to the Labor Department. The jobless rate fell 0.3 percentage points to 7 percent, a five-year low, edging closer to the Fed’s 6.5 percent threshold. The Federal Reserve has said repeatedly it will not consider raising interest rates until the jobless rate falls to 6.5 percent.

“A small taper might recognize labour-market improvement while still providing the committee the opportunity to carefully monitor inflation during the first half of 2014,” said Bullard. “Should inflation not return toward target, the committee could pause tapering at subsequent meetings.”

Bullard has been a vocal supporter of record stimulus. While acknowledging a taper is possible, he reassured the markets any cut should be modest due to inflation, which continues to trend below target.

The FOMC meets December 17-8 for its last rate decision of the year. One-third of economists believe the Fed could start paring back asset purchases at the next meetings rather than wait until January or March, according to a recent survey from Bloomberg. Last month’s poll revealed only 17 percent of economists believe a taper is likely to occur in December.

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