WASHINGTON/SAN FRANCISCO, Nov 4 (Reuters) - The Federal Reserve should scale back its asset purchase program only when the U.S. economy improves and even then only slowly, one senior U.S. central banker said on Monday.
Another said there is no need to rush the process.
The two Fed officials, St. Louis Federal Reserve Bank President James Bullard and Federal Reserve Board Governor Jerome Powell, did not say exactly when they believe the Fed will begin withdrawing stimulus, a question that is at the forefront of many investors' minds.
Powell called the timing "necessarily uncertain" because it depends on the strength of the recovery.
But their comments underscored Fed Chairman Ben Bernanke's repeated promise that the U.S. central bank will not reduce stimulus according to a set timeline, but rather in response to economic developments.
"What it's reasonable to expect us to do is to be transparent and to move gradually when it is time to withdraw accommodation, or even to begin reducing the pace at which we add accommodation and go slowly in doing that," Powell told the Asia Economic Policy Conference.
The Fed should also "hold to our obligation to only do that as demand does strengthen in the United States," he said. "Those are the things that we can do and we must do, should do."
The Fed is buying $85 billion in long-term assets each month to boost investment and hiring by pushing down long-term borrowing costs. Last month the Fed stuck to that program, saying it needed more evidence of stronger growth before reducing stimulus. Both Bullard and Powell voted with the 9-1 majority.
"For me, you don't have to be in a hurry because of low inflation," Bullard told CNBC television.
Bullard said he wanted to see inflation heading back up toward policy-makers' 2 percent goal before tapering bond buying. Inflation has been running much closer to 1 percent, he noted.
The Fed's October decision followed bitter partisan battle in Washington that led to a 16-day partial government shutdown and flirted with a devastating debt default.
A deal was eventually forged to reopen the government and raise the U.S. borrowing limit until early in the new year, meaning the fiscal showdown could resume in a matter of months.
Bullard said he did not think the shutdown in itself would do lasting harm to the economy, although he acknowledged that the political fighting had hurt confidence. But the Fed should not wait for a permanent budget deal before taking policy action, he said.
"I think we can't really wait for the political situation in Washington to be just right because, evidently, they could be bickering for ever," he said.
He also played down the impact that the central bank's leadership transition would have on decision-taking, after President Barack Obama nominated Fed Vice Chair Janet Yellen to take over the helm from Ben Bernanke when his term expires at the end of January. Yellen's appointment must be confirmed by the U.S. Senate.
"I don't think the committee would put very much weight on anything like that. It is a continuous process and it is a committee that is making the policy and they want to adjust at the right time," Bullard said. He also said that he expected she would help ensure policy continuity once she was in charge.
Powell, speaking in a conference room at the San Francisco Fed named after Yellen, devoted most of his remarks to debunking the idea that easy accommodative policy in the United States and other advanced economies has been primarily responsible for the massive capital inflows, currency appreciation and asset price rises that some emerging economies have blamed on policies implemented by the Fed and other major global central banks.
While accommodative monetary policies "likely contributed to some of these flow and price pressures," he said, and may also have contributed to the buildup of potential financial imbalances in certain emerging markets, "other factors appear to have been even more important."
Among those factors, he said, are expectations that some emerging economies will grow more slowly than before.
A third Fed policymaker, Dallas Fed President Richard Fisher, told a group of economists in Sydney that he does not see the Fed continuing its bond-buying program indefinitely, or increasing it.
But even Fisher, a stalwart opponent of the Fed's current easy policy, said he could see the Fed holding rates low for a very long time.