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Bullard Says Fed Mulling More Treasury Purchases if Economy Deteriorates
The Federal Reserve may increase purchases of Treasuries if the U.S. economy weakens further, though any new program should be “disciplined,” St. Louis Federal Reserve President James Bullard said.
“The committee gave a signal that we are ready to move if conditions deteriorate further, which was certainly in line with my thinking,” Bullard said in an interview on CNBC Television today at the Fed’s annual symposium in Jackson Hole, Wyoming. “I want a disciplined program.”
Bullard supported the Fed’s decision two weeks ago to keep its bond holdings at $2.05 trillion by reinvesting the proceeds from maturing mortgage-backed securities into Treasuries. The Federal Open Market Committee, seeking to spur economic growth, held the main interest rate unchanged at zero to 0.25 percent, where it’s been since December 2008, and affirmed a pledge to keep rates low for “an extended period.”
“If we could still target interest rates, we would make small moves to adjust to the data,” Bullard said. “I think we should do the same with our quantitative easing program.”
After cutting rates to near zero, the Fed turned to its balance sheet as a primary tool of monetary policy. The Fed’s total assets, which include loans and securities other than those used for monetary-policy operations, rose to $2.3 trillion from $878 billion at the start of 2007.
‘Soft Patch’
“We are in a soft patch for the economy,” Bullard said. “I still think we will get reasonable growth in the second half and importantly growth will pick up in 2011.”
The U.S. economy grew at a 1.6 percent annual rate in the second quarter, less than previously calculated, as companies reined in inventories and the trade deficit widened, figures from the Commerce Department showed today.
Questioned on the housing market, Bullard said that “housing has fallen to such a low level” that “I really think it will be flat for a long time.”
Fed Chairman Ben S. Bernanke “has complete support of the committee, certainly a huge majority on the committee,” Bullard said.
To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net
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