Bullard Says Federal Reserve’s QE Program Has Been ‘Successful’
Federal Reserve Bank of St. Louis President James Bullard said the central bank’s quantitative easing program has been “successful” and is a better response to financial crises than previous strategies.
“The conventional wisdom policy response to a negative shock is to promise a longer ‘extended period,’” Bullard said today in a prepared presentation for a speech in Marseille, France. “This may work--but it may also encourage a liquidity trap outcome. A better policy response to a negative shock is to expand the QE program.”
The Fed’s policy committee said March 15 that the U.S. economic recovery “is on a firmer footing,” while the labor market is “improving gradually.” Policy makers reiterated plans to buy $600 billion in Treasury securities through June to bolster growth and reduce unemployment.
While quantitative easing programs in the U.S. and the U.K. have been “successful,” effects of the stimulus are difficult to disentangle because of other shocks to the economy, Bullard said. “Effects on the real economy would be expected to lag by six to 12 months,” he said.
Bullard said last month the U.S. central bank may need to reduce the amount of purchases in light of stronger U.S. economic data. Philadelphia Fed President Charles Plosser and Richmond Fed President Jeffrey Lacker have also urged a review of the purchases in light of a strengthening economy and concern over future inflation.
U.S. central bankers have said they will keep interest rates near zero for “an extended period.” In contrast, European Central Bank officials indicated this month that uncertainty caused by Japan’s earthquake may not deter them from raising interest rates next month.
The U.S. economy is forecast to expand at a 3.4 percent rate this quarter and 3.3 percent rate in the second quarter, according to the median of 67 economists surveyed by Bloomberg News this month.
Bullard has warned since last July about a risk of Japanese-style deflation in the U.S. while calling for purchases of Treasury securities to reduce the threat.
The Fed’s preferred price gauge, which excludes food and fuel, rose 0.8 percent in January from a year earlier, matching December’s year-over-year gain, the lowest in five decades of record-keeping. Fed officials aim for long-run overall inflation of 1.6 percent to 2 percent.
Bullard, 50, voted in favor of the Treasury purchase program in November and has rotated this year into an annual non-voting position. He joined the St. Louis Fed’s research department in 1990 and became president of the bank in 2008.
To contact the reporters on this story: Scott Hamilton in London at shamilton8@bloomberg.net; Steve Matthews in Atlanta at smatthews@bloomberg.net
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Chris Wellisz at cwellisz@bloomberg.net
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