The wide divergence of opinion within the Federal Reserve over when to wind down its unprecedented support for the US economy was on full display on Friday, starkly illustrating chairman Ben Bernanke’s leadership challenge for the rest of this year.
St Louis Fed president James Bullard and Charles Plosser, his counterpart at the Philadelphia Fed, sat on the same panel at a conference here, but sang quite different tunes on what to do about the US central bank’s massive bond-buying programme.
While Bullard and other more dovish policymakers want to keep buying assets until inflation rises and unemployment drops, Plosser and the more hawkish of the Fed's 19 policymakers want to reduce the pace sooner than later.
“It is time to exit from the asset purchase programme in a gradual and predictable manner,” Plosser told the 5th Annual Rocky Mountain Economic Summit.
After delivering his speech and fielding a few questions from bankers and economists, Bullard told reporters: “I'd like some kind of reassurance that inflation was moving back towards target” before reducing the bond buying.
It was yet another clue for investors as they try to predict when the Fed will reduce the $85 billion in monthly bond purchases, a policy meant to encourage investing, hiring and overall US economic growth.
According to minutes of the Fed's June policy meeting, around half of the 19 policymakers gathered there expected to end the quantitative easing programme (QE) by late this year, while the other half wanted to keep buying bonds into next year.
That contrasts with the conditional timeline Bernanke articulated in a news conference after the meeting on June 19, when he said the Fed’s 12-member policy-setting committee expects to end QE by mid-2014, as long as economic growth continues as expected.
While the official statement from the 12-member Federal Open Market Committee made no mention of that timeline, Bernanke said he was speaking on its behalf. The comments prompted a global market selloff, from bonds to stocks to emerging-market currencies, over the following few days.