Fed’s Bullard Says QE2 Exit Debate Likely ‘Key’ 2011 Issue
St. Louis Federal Reserve President James Bullard
Tomohiro Ohsumi/Bloomberg
St. Louis Federal Reserve President James Bullard.
St. Louis Federal Reserve President James Bullard. Photographer: Tomohiro Ohsumi/Bloomberg
The U.S. Federal Reserve may need to decide on when to tighten monetary policy before the outlook for the global economy clears up later this year, St. Louis Fed President James Bullard said.
“The process of normalizing policy, even once it begins, will still leave unprecedented policy accommodation on the table,” he said according to a statement on remarks he was to deliver at a financial forum in Prague today. “The FOMC may not be willing or able to wait until all global uncertainties are resolved to begin normalizing policy.”
Recent remarks by several regional bank presidents have highlighted the difference of views that has emerged since the Fed’s March 15 meeting, when policy makers kept in place the plan to buy $600 billion in Treasury securities while concluding the recovery is on “a firmer footing” and the labor market is “improving gradually.”
Boston Fed President Eric Rosengren said yesterday that high unemployment and low core inflation mean record monetary support is still necessary. Chicago Fed President Charles Evans said he believes data suggesting a more sustainable recovery won’t prompt an alteration in the bond-purchase program.
Bullard said last week that he wants a review of the bond program, while Charles Plosser of the Philadelphia Fed laid out a strategy to sell holdings in conjunction with raising interest rates.
‘Natural Debate’
Noting the improved economic outlook since the plan was implemented, “the natural debate is how and when the exit should begin,” Bullard said. “However, additional uncertainty has clouded this picture.”
He said four areas in particular are raising “macroeconomic uncertainty.” These included turmoil in the Middle East and north Africa, the natural disaster in Japan, “the U.S. fiscal situation and the possibility of a government shutdown,” and Europe’s sovereign debt crisis.
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.
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.
To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net
To contact the editor responsible for this story: Alan Crosby at acrosby1@bloomberg.net
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