Federal Reserve officials are renewing a debate over cutting interest paid to banks on excess reserves, a move aimed at convincing investors that tapering its bond-buying isn’t the same as tightening its monetary policy.
Federal Reserve Bank of St. Louis President James Bullard, a voter on policy this year, said an improving job market has increased the chances of a reduction in the Fed’s bond purchases, and any cut should be modest because of too-low inflation.
The share of economists predicting the Federal Reserve will reduce bond buying in December doubled after a government report showed back-to-back monthly payroll gains of 200,000 or more for the first time in almost a year.
Two Federal Reserve regional bank presidents who have disagreed on the need for additional easing said any decision to taper bond buying should be accompanied by a limit on the size of the program or a timetable for ending it.
Federal Reserve Bank of Philadelphia President Charles Plosser, who has opposed additional stimulus, said better-than-expected job growth bolsters the case for the central bank to wind down its asset purchases.
U.S. stocks declined a fifth day, sending the Standard & Poor’s 500 Index to a two-week low, after improving economic data boosted bets the Federal Reserve will curb its monthly bond purchases sooner than estimated.
Federal Reserve Chairman Ben S. Bernanke and his colleagues are suffering through their own form of cognitive dissonance: revealing new concerns about the economy’s long-term prospects even as they forecast faster growth in 2014.
Federal Reserve Bank of Atlanta President Dennis Lockhart said he thinks the central bank can handle its exit from quantitative easing when the time comes, despite uncertainty caused by a balance sheet close to $4 trillion.
Federal Reserve Bank of Atlanta President Dennis Lockhart, who has backed record stimulus, said he wants to see inflation accelerate toward the Fed’s 2 percent goal before the central bank reduces $85 billion in monthly bond purchases.