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MNI: Bullard-Fed Needs Option To Speed Taper, Hike Rates

WASHINGTON (MNI)

The Fed needs to improvise its taper strategy from the 2014 playbook on upside risk to inflation, says Jim Bullard.

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The Federal Reserve needs to have the option to speed up tapering of asset purchases and raise interest rates if inflation comes in faster than anticipated, in what would be a departure from the 2014 taper playbook, St. Louis Fed President Jim Bullard told reporters Monday.

"You probably don't want to be in a situation where you have to pull in rate hikes while you're still tapering, but the committee I'm sure would want to keep all options open," he said. "Could we do it? Sure, we could do a lot of things, but we want this to be transparent, non-disruptive, give everyone a good signal about how this is going to transpire."

Raising rates while still purchasing Treasuries "certainly has been viewed as something that we wouldn't do," based on the "2013-14 playbook," he said. But the current taper debate takes place in an entirely different environment.

"Everyone is saying inflation is above target today and continuing to be above target going forward," he said. "My main point is to stay contingent, to adjust as necessary to provide optionality for the committee down the line."

Bullard said in a CNBC interview Friday that he anticipates raising rates by the end of 2022. He declined to offer details on when he prefers to begin tapering assets.