St. Louis Federal Reserve Bank President James Bullard told Bloomberg TV's Michael McKee today that 2013 "is going to be a better year. I am probably more optimistic than most. I think a lot of the uncertainties that were around this economy in 2012 have come off the table."

On the Fed's $85 billion per month asset purchase program, Bullard said, "I do think this idea of tapering is one that I like. If we continue to get signs of improvement in labor markets we can slow down our pace of purchases."

Bullard on today's jobs report:

"I did not see all of the details of the jobs report but in general I would say it was a positive report. Unemployment did tick up though. If you look at those numbers and average over the last three months, at least my ocular average was 200,000 either on the headline or the private payroll numbers. So 200,000 per month is a pretty strong pace. Obviously we have had trouble getting to that level during the recovery. If we could sustain that, that would be great during 2013."

On what happens to a Fed that wants 6.5% unemployment and unemployment goes up because more people enter the labor force:

"I am not sure about the story that more people are going to enter the labor force as the unemployment rate ticks down. I think that is something that happens at a much lower levels of unemployment than we have right now. You are talking about people who have been out of the labor force for a while. They basically made a decision that says that they do not like their options or what is being offered at their skill level so they are going to do something else--stay at home, go back to school, retire early or something like that. I am not sure those people are going to hop right back into the labor force just because unemployment is somewhere in the 7s. I am projecting unemployment, despite today's tick up, I think it will continue to tick down through 2013. If you look at last three years unemployment has ticked down even though growth has not been strong, so I think that will probably continue in 2013."

On why he voted for a third round of bond buying by the Fed when he's previously expressed skepticism about it:

"This particular meeting was not a decision to extend the program. It was a decision to remain where we were. I felt that was probably the right thing to do at this meeting. I was in agreement with the chairman and the majority in this case."

On the December meeting showing that there was a lot of debate on how long the bond buying program would stay in place and whether that continued into the January meeting:

"Of course the committee continues to discuss all our programs including the QE program and how we are going to handle it going forward. I think we have been able to get more agreement on the interest-rate side and probably less agreement on the balance sheet side. I think it is going to be a collective judgment of the committee as to when there will be substantial improvement in labor markets that's sufficient so we can slow down our purchases. We are going to have to leave it at that. I don't think we have any agreement among members at this point."

On whether bond buying will slow down or stop by the end of the year:

"It is a state-contingent thing. I think we are going back to see how the economy progresses during the year. If we do get enough improvement in labor markets we will have had a good year and we will be in a position to slow down or stop the purchases. I do think this idea of tapering is one that I like. If we continue to get signs of improvement in labor markets we can slow down our pace of purchases. I would not regard that as a tighter policy, I would regard that as a slower pace of easing policy. I think we can do that and communicate that in the right way and stay away from the notion that all of a sudden one day we are going to be buying 85 billion and the next day we are going to buy 0. You don't need to have that kind of a thing."

On whether he's afraid if the Fed does that, everyone in markets will head for the exits:

"I don't think so because it certainly does not mean that we made any decisions to sell any assets. It is just that the pace of the purchases would be slower than otherwise. We could think about that and talk about that, but that is one way to manage the program going forward. It would be one way to acknowledge to markets that we see some improvement, but not enough improvement to stop the easing program altogether."

On what he says to traders who say that the Fed is distorting the markets:

The Fed is certainly part of the market but only part of it. There is an equilibrium there with the policy we have in place. But that would always be true with the Fed...It is a bigger program than usual. The economy has been hit by a bigger shock than usual so that is why the policy is unusual at this time. I do think it is important to stay away from the very low inflation scenarios that sometimes grip economies that are in this situation. As you know I have been concerned about deflation in the past. I am actually not that concerned about it right now. If you look at the headline PCE inflation measured from a year ago, 1.3% is a low-ish number. I would have been willing to argue up to now it is just a matter of noise. But it is low. I don't like the core number as much."

On whether he has deflationary worries:

"I am not worried about it yet, but these are getting to be low. I think we have some room to maneuver on the inflation front as a committee because these numbers have come in lower than expected and we are running below our target right now."

On the Fed's communication strategy and what investors should think about 2013:

"I will tell you what you should think about 2013. I think it is going to be a better year. I am probably more optimistic than most. I think a lot of uncertainties that were around this economy in 2012 have come off the table. The elections have come off. Some of the fiscal risk in the U.S. has come off. The European situation has settled down a lot. China is looking like it will have a better year. Emerging markets will have a better year. Europe went into recession in 2012. I do not think Europe will go deeper into recession. They might improve a little in 2013. For all of these reasons I think a lot of the uncertainty has pulled pack--not all of it, but you still have health care and other issues out there. A lot of it has come off the table. I think that is why we are seeing rallies in U.S. equity markets. I also think Fed policy is quite a bit easier right now than it was six or nine months ago. I think that outright purchases are a more potent tool than the Twist import. We also made changes to the way we do the forward guidance that is a definite improvement. We got rid of that mid 2015 date and put thresholds in place instead. There are a lot of arguments about that. The good part is you get rid of this pessimistic signal that we were sending that the economy is going to be bad for another three years. I think those improvements made monetary policy easier. Both of those things are just coming online now. We have an easier monetary policy with less uncertainty facing that U.S. economy."