First official to suggest taper delay in October A comment from a hawkish Federal Reserve official on Thursday that central-bank bond buying should continue beyond its scheduled end lifted stock markets and surprised many observers. The Federal Reserve should consider extending its bond-buying program beyond October due to the market selloff to see how the U.S. economic outlook evolves, said James Bullard, the president of the St. Louis Fed, on Thursday. At the moment, the Fed is buying $15 billion in securities each month, having tapered the so-called QE3 plan by $10 billion at each meeting this year. The U.S. central bank has said it expects to end its quantitative easing at the end of October, but Bullard noted that the timing was always data-dependent. Bullard said the Fed cannot “abide” the recent drop in inflation expectations seen in the Treasury Inflation Protected Securities. “We have to make sure inflation and inflation expectations remain near our target. And for that reason, a reasonable response of the Fed in this situation ... we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December,” Bullard said in an interview on Bloomberg TV. “If the economy is still as robust as I am describing it, then I think we could just end the program in December. But if the market is right, and this is portending something more serious for the U.S. economy, than the committee would have an option of ramping up QE at that point,” he said. The S&P 500 SPX, +0.01% jumped from its session low of a 0.9% drop after Bullard’s remarks came out. The index basically finished where it started, while the Dow Industrial Average DJIA, -0.15% dipped for the sixth day. Bullard is the first Fed official to put the policy of a taper delay on the table, noted BNP Paribas economist Laura Rosner. Although Bullard is seen as a hawk — pushing, for instance, for the Fed to lift interest rates from historical lows in March 2015 — “he has always been highly sensitive to inflation developments,” Rosner noted. Thomas Simons, an economist at Jefferies, said he would be surprised if the taper delay idea gained traction, even among the doves on the Fed committee. “It is possible that Bullard is hoping that simply talking about more QE will be enough to raise inflation expectations,” Simons said. One concern is that a failure to end QE “would be an admission that the recovery is failing and that could backfire on Yellen,” said Eric Green, head of economic research at TD Securities. Bullard said U.S. economic fundamentals remain strong and he still thinks growth will be over 3% over the next 18 months. Stephen Stanley, economist at Amhert Pierpont Securites, said the TIPS market was not sending accurate reading about the market’s inflation expectations because of the Fed bond-buying. “They have hoovered up so many securities, getting a clean signal of inflation expectations is asking way too much of the market, “ Stanley said. Bullard said there are also some “bullish factors” like lower long-term interest rates and lower oil prices that will come out of the market sell-off. Robert Brusca, chief economist at FAO Economics, said continuing asset purchases was “exactly the wrong thing for the Fed to do.” With rates at zero, investors are left in an “apoplectic state wondering if the economy is going to evaporate,” he said. By GREG ROBB SENIOR ECONOMICS REPORTER