The near-term future of the Federal Reserve's stimulus program looked more uncertain after a key policymaker revealed that Wednesday's decision to keep monthly bond buying at $85 billion was a "borderline" call.
The so-called tapering of quantitative easing could start next month with a "small" reduction in purchases, St. Louis Fed President James Bullard, who votes on the policy panel, also told Bloomberg TV on Friday.
"We got some weaker data, so that put the committee in a position where we could delay," he said. "We can afford to be patient" while inflation is low.
But that "patient" decision stunned Wall Street after tapering hints from policymakers, including Chairman Ben Bernanke, who has stressed the importance of clear communication.
Kansas City Fed President Esther George, a hawkish policymaker, warned Friday that the central bank's credibility is at risk.
"The actions at this meeting, and the expectations that have been set relative to how markets were thinking about this, created confusion, created a disconnect," she said at a meeting of economists.
The Fed already must rely on mixed economic data to determine the timing of the first taper. The news that monetary policy is close to a shift means that investors will be hanging on every economic data point until the Oct. 29-30 meeting.
Job growth has weakened recently, while the unemployment rate has fallen. Inflation has picked up but is still well below the Fed's 2% target. And the housing recovery has been slowed by higher mortgage rates.
The October meeting's outcome should also be a close call, said Ryan Sweet, an economist at Moody's Analytics, though he doubts one extra month of data will alter views on the economy.
He expects the Fed to start tapering in December but could see it starting early next year too.
The Fed on Wednesday said the looming budget showdown as a reason not to taper. The government funding and debt ceiling issues could be resolved by the Oct. 29-30 meeting.
Bullard said he would like to see inflation firm up more before supporting a drawdown of QE, reiterating an ongoing concern over low price growth.
But if hiring and the jobless rate continue to improve, tapering will be more likely, he said.
"He's playing both sides," said Tim Duy, an economics professor at the University of Oregon.
Inflation probably won't heat up dramatically soon, so Bullard should still be inclined to maintain the QE pace, Duy said.
But Bullard recognizes that there is growing momentum among Fed policymakers to start scaling back stimulus.
Future debate will take place as the Fed policy panel is set for significant turnover.
More Hawks Next Year Rotating off the committee will be three doves and one hawk. Rotating on will be two hawks, Philadelphia Fed President Charles Plosser and Dallas Fed President Richard Fisher.
Minneapolis Fed chief Narayana Kocherlakota, who has been in favor of easing, also will join the FOMC. The other rotating seat is for the Cleveland Fed, which will get a new president when Sandra Pianalto leaves early next year.
In addition, one Fed governor has left and another will soon. Bernanke himself is expected to exit when his term expires in January. Their replacements likely will be dovish as well, but the Senate could hold up their confirmations.