Fed’s Bullard Says $100 Billion Should Be Cut From Buying Plan on Recovery
St. Louis Fed President James Bullard
Qilai Shen/Bloomberg
St. Louis Fed President James Bullard.
St. Louis Fed President James Bullard. Photographer: Qilai Shen/Bloomberg
The Federal Reserve may need to trim about $100 billion from its plan to buy $600 billion in Treasury securities because the U.S. recovery has gained strength, St. Louis Fed President James Bullard said.
“We are still feeding the fire at this moment, so I think we have to start thinking about turning this around in the near future,” Bullard said to reporters at a financial conference in Prague today. “If the economy is as strong as I think and hope it will be in 2011, I think it will be time for us to start to reverse our ultra-aggressive and ultra-easy monetary policy.”
Bullard’s view differs from those of at least three other Fed regional bank leaders who yesterday urged completion of the purchases. Chicago Fed President Charles Evans said reports showing a more sustainable recovery don’t justify reducing support, while Boston Fed President Eric Rosengren said high unemployment makes Fed aid necessary. Atlanta Fed’s Dennis Lockhart reiterated he expects the Fed to finish the purchases.
“We could pull up a little bit shy of our total of $600 billion,” Bullard said. “I think it could be on the order of $100 billion less than what we initially thought.”
The yield on the benchmark 10-year Treasury note rose six basis points to 3.489 percent at 1:35 p.m. in New York trading. Yields have risen more than 1 percentage point since October amid reports of a stronger U.S. recovery.
‘The Right Number’
“It could be that $600 billion is just about the right number,” Evans said to reporters yesterday in Columbia, South Carolina. “I still think it is a high hurdle to stop short of $600 billion. So far I haven’t seen it.”
Chairman Ben S. Bernanke has given no indication the central bank will deviate from its plan to buy bonds through June to spur economic growth and reduce 8.9 percent unemployment.
The Federal Open Market Committee said March 15 that the recovery “is on a firmer footing,” while the labor market is “improving gradually.” Policy makers reiterated plans to buy $600 billion in Treasury securities to bolster growth.
“One of the things that I am concerned about is that the policy is so easy right now, that we have to get started on the process of going back to normal because it will take a long time to do that,” Bullard said.
His call for a review of the policy has been echoed by Charles Plosser of the Philadelphia Fed, who last week laid out a strategy to sell holdings in conjunction with raising interest rates.
‘Inflation Hawks’
In July, Bullard, who calls himself the “north pole of inflation hawks,” called for Treasury purchases as a way to avert what he said was the rising possibility of Japan-style deflation. Policy makers in November approved the $600 billion purchase plan.
Bullard also spoke out on policy in November 2009, saying history suggested the Fed wouldn’t raise its target federal funds rate until 2012, two years later than expected by private economists. The consensus has caught up with him, with the median of 59 economists surveyed by Bloomberg News this month expecting an increase in the first quarter of 2012.
Bullard’s views haven’t always gained traction. Since March 2010 he has raised concerns about the Fed’s commitment to keep interest rates near zero for “an extended period,” arguing that the central bank should use more flexible language that lays out the specific conditions that would prompt a policy change. The phrase “extended period” continues to be in Fed statements.
Small Adjustments
Bullard has also said the central bank should consider altering the size of asset purchases at every policy meeting rather than commit to a total purchase amount by a certain date. Such an approach would be similar to making small adjustments to the federal funds rate, he said.
Bullard, 50, 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.
Fed officials have purchased $1.7 trillion of mortgage debt and Treasuries through March 2010 to pull the U.S. out of the recession. The Fed’s second round of purchases has come under fire from Republican leaders in Congress who say it risks inflating asset-price bubbles and stoking inflation.
To contact the reporters on this story: Peter Laca in Prague at placa@bloomberg.net; Alan Crosby in Prague at acrosby1@bloomberg.net
To contact the editor responsible for this story: Alan Crosby at acrosby1@bloomberg.net
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