Fed's Bullard: fiscal problems make Oct QE cut less likely

Reuters

* Central banker cites shutdown, debt debate, lack of data

* Can be patient with QE until inflation closer to target

* Warns on a U.S. default, a 'self-inflicted wound'

By Jonathan Spicer

ST. LOUIS, Oct 10 (Reuters) - The Federal Reserve is lesslikely to reduce its bond-buying program this month given theU.S. government shutdown and resulting lack of economic data, aswell as the ongoing debate over the debt ceiling, a top centralbank policymaker said on Thursday.

St. Louis Fed President James Bullard, a voter on policythis year, said the fiscal problems in Washington have "changedthe odds" on whether the central bank will trim the monthly$85-billion quantitative easing program (QE) at a meeting setfor Oct. 29-30.

Bullard supported the shock decision last month to maintainthe $85-billion monthly pace of bond purchases meant to spurinvestment, hiring and growth. Markets at the time reactedsharply to the decision, with stocks soaring globally.

Bullard said the decision not to reduce stimulus wasappropriate given this month's fiscal gridlock in Washington.

Last month "we cited that fiscal uncertainty was a risk andthat risk has materialized, so I think that's making it lesslikely than would otherwise be that we make a decision to taperin October," Bullard told reporters on the sidelines of aconference hosted by his Fed bank, adding the debt-ceilingdebate also plays a big role.

He said he has not made up his mind and didn't want topre-judge the October meeting. But the fiscal problems have"changed the odds," he said, adding the Fed can be patient withits QE until inflation rises closer to its 2 percent target.

Budget gridlock at the U.S. Congress led to an Oct. 1government shutdown that threatens to hurt economic growth andhas already delayed key economic data such as the September jobsreport. Lawmakers are now locked in debate over when and how toavoid a government default raise on Oct. 17.

"It's just imperative that we do not go in this directionand get into a situation where we're not paying some of ourbills," Bullard said, noting the U.S. dollar is the world'sreserve currency and the United States is seen as a safe haveninvestment.

"There's no reason to let a self-inflicted wound put that atrisk," he said. "We want to protect our international reputation... and get this thing done."

Bullard is usually seen as a policy centrist, but has becomeone of the central bank's most vocal doves due to concern thatinflation remains too far beneath the Fed's goal of 2 percent,which he worries could lead to damaging deflation.

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