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

James Bullard, President of the St. Louis Federal Reserve Bank, speaks during an interview with Reuters in Boston, Massachusetts August 2, 2
James Bullard, President of the St. Louis Federal Reserve Bank, speaks during an interview with Reuters in Boston, Massachusetts August 2, 2

By Jonathan Spicer

ST. LOUIS (Reuters) - The Federal Reserve is less likely to reduce its bond-buying program this month given the U.S. government shutdown and resulting lack of economic data, as well as the ongoing debate over the debt ceiling, a top central bank policymaker said on Thursday.

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

Bullard supported the shock decision last month to maintain the $85-billion monthly pace of bond purchases meant to spur investment, hiring and growth. Markets at the time reacted sharply to the decision, with stocks soaring globally.

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

Last month "we cited that fiscal uncertainty was a risk and that risk has materialized, so I think that's making it less likely than would otherwise be that we make a decision to taper in October," Bullard told reporters on the sidelines of a conference hosted by his Fed bank, adding the debt-ceiling debate also plays a big role.

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

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

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

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

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

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama and David Gregorio)

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