INDIANAPOLIS/RALEIGH (REUTERS) - Another cut to bond purchases appears in the offing this month despite data that showed United States (US) jobs growth slowed sharply in December, two top Federal Reserve officials said on Friday.
The officials, from opposite sides of the US central bank's spectrum of policymakers, reinforced public perceptions that it would take a more significant slowdown in the labour market to convince the Fed to stop withdrawing stimulus.
In what amounted to the beginning of the end of the largest monetary policy experiment ever, the Fed last month decided to cut its bond-buying by US$10 billion (S$12.7 billion) to US$75 billion each month, citing progress in the labour market.
Earlier on Friday, a report showed US joblessness fell to 6.7 per cent from 7 per cent in November. But hiring was far lower than expected, leaving many second-guessing just how strong is the labor market recovery that took hold in the autumn.
"I would be disinclined to react to one month's number," St Louis Fed president James Bullard told reporters after speaking at an Indiana bankers event. "For now we're on a programme where we're likely to continue to taper (asset purchases) at subsequent meetings."
Mr Bullard, who last month backed the cut to the so-called quantitative easing programme, said he was more focused on the drop in unemployment than on the paltry 74,000 jobs that were created, a number he expects to be revised higher.
Mr Jeffrey Lacker, the hawkish head of the Richmond Fed, said it would take a "couple of quarters" of bad news to change the US economy's improving trend.
"It takes a lot more than one labour market report to be convincing that the trend has shifted and in my experience one employment report rarely has an effect by itself on monetary policy," said Mr Lacker, who has been an opponent of bond buying from its start.
"I would expect a similar reduction in pace to be discussed at the upcoming meeting," Mr Lacker told reporters after a speech to a business group in Raleigh.
The Fed's next meeting is on Jan 28 to 29, Bernanke's last as chairman before he is succeeded by vice-chair Janet Yellen.
Clarifying future Fed policy a bit more, US President Barack Obama on Friday nominated former Bank of Israel governor Stanley Fischer to replace Ms Yellen. He also nominated former top Treasury official Lael Brainard to fill a vacancy at the Fed Board, and renominated Governor Jerome Powell.
Neither Mr Bullard nor Mr Lacker have votes on policy this year under the Fed's rotating system.
To recover from the recession, the Fed has held benchmark interest rates near zero since late 2008 to spur growth and hiring. It also has quadrupled the size of its balance sheet to around US$4 trillion through three rounds of massive bond purchases aimed at holding down longer-term borrowing costs.
The Fed tempered the Dec 18 cut to bond-buying by suggesting its key interest rate would stay at rock bottom even longer than previously promised. It will now likely wait until well after the US unemployment rate falls below 6.5 per cent before it tightens policy, instead of simply waiting at least until that threshold was hit.
Asked whether the Fed might be forced to lower that 6.5 per cent threshold, given the sharp drop in joblessness, Mr Bullard said it was unlikely in part because such a move could compromise the credibility of the policy promise.
For now, polls show most economists expect the Fed to trim its monthly bond-buying by about US$10 billion at each meeting.
Until the dour December jobs report, growth in consumer spending, housing and manufacturing, as well as a congressional budget deal struck last month, suggested the US economy was stepping up its slow recovery from recession.
However the big "wildcard" for Fed policy this year remains persistently low inflation, Mr Bullard said.
"For now we're on a programme where we're likely to continue to taper at subsequent meetings... But it is data dependent. If inflation stepped lower in a clear way then I think that would give me some pause" in continuing the cuts, he said.
The Fed targets 2 per cent inflation.
Mr Lacker said he was confident inflation would move back toward that goal in the next year or two but added: "This is not a certainty, however, and I believe the FOMC will want to watch this closely," referring to the policy-setting Federal Open Market Committee.