The chances of the taper have increased thanks to the recent labor market data, says St. Louis Fed chief Jim Bullard, but below-target inflation remains an issue. "There is no widely accepted reason why inflation is running as low as it is in the face of extraordinarily accommodative policy from the Fed,” he says. “A small taper might recognize labor market improvement while still providing the Committee the opportunity to carefully monitor inflation during the first half of 2014 ... Should inflation not return toward target, the Committee could pause tapering at subsequent meetings."
Like John Williams last week, Bullard suggests a change in forward guidance may be in order to convince markets the taper and a rate hike are two separate issues.
Treasurys remain little-changed on the session, the 10-year yield off a basis point to 2.85%.
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