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Talking to reporters in Australia, St. Louis Federal Reserve
President James Bullard said opinions differed within the Fed on
ending its balance sheet reinvestment policy and it would take
some time to agree on, but he felt it could start later in the
year.
Bullard emphasized that the central bank would not be actively
selling assets from its $4.5 trillion balance sheet, but rather
not replacing them as they mature.
This could be well accommodated by markets, he said, and would
put limited upward pressure on Treasury yields.
Markets were wrongfooted somewhat last week when minutes of the
Fed's last policy meeting showed policy makers were considering
shrinking its assets later this year.
New York Fed President William Dudley said on Friday that the
Fed could begin shedding bonds from its portfolio as soon as
this year. The comments temporarily pushed the dollar lower and
raised yields on longer-dated bonds.
Economists polled by Reuters and by the Fed itself had generally
expected the process to start some time next year.
Bullard, considered a policy dove by investors, said he favored
only one more interest rate hike this year and argued that
ending bond reinvestment could act as a replacement for rate
rises.
Financial markets are pricing in around two more rate hikes this
year, while some at the Fed favor three or more.
Bullard noted the March payrolls report out last Friday was
relatively weak and fitted in with his view that inflation would
not stray far from 2 percent in coming months.
Asked about the impact of the U.S. missile strike on Syria
ordered by President Donald Trump last week, Bullard said he did
not see it as a major geopolitical event that would affect
monetary policy at the Fed.
(Reporting by Wayne Cole and Richard Pullin; Editing by Kim
Coghill)
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