Fed’s Bullard Says Exit Plan Should Start With Sale of Assets
Federal Reserve Bank of St. Louis President James Bullard said that when the central bank begins withdrawing record monetary stimulus it should sell assets and ensure that inflation remains low.
“First take back some of the balance sheet policy and then later move off zero on the policy rate,” Bullard told reporters prior to a speech today in St. Louis. “This is very much a live debate within the Federal Reserve. There is a lot of uncertainty about the optimal way to proceed as we haven’t been in that situation.”
Bullard has said since February that the Fed should trim its plan to buy $600 billion in U.S. Treasuries through June amid reports of stronger economic growth. He reiterated his view today, while saying there’s “not a groundswell of support for that” among other policy makers.
“We have an ultra-easy, uber-easy monetary policy in the U.S. and we have to think of how we are going to exit from this policy in a way that keeps inflation low and stable,” Bullard said.
“I do think the economy has come in stronger than we anticipated at the time of the November decision to embark on” the bond purchases, Bullard told reporters before introducing Bundesbank President Axel Weber, who is scheduled to give a lecture at the St. Louis Fed.
“Inflation has probably bottomed out in the U.S. and started to turn higher,” he said. “Expected inflation” has “definitely moved higher than it was last fall.”
‘Passive Policy’
Shrinking the Fed’s $2.65 trillion balance sheet should be done actively rather than by “runoff” through maturing mortgage-backed securities, Bullard said. “That is a passive policy,” he said. “That doesn’t sound like optimal policy to me.”
While first-quarter growth projections have been downgraded by private-sector economists, growth is likely to pick up in later quarters, Bullard said.
“Most forecasts, and my own as well, suggest that we will get more growth in the second quarter and through the rest of the year,” Bullard said.
“A lot of the anecdotal reports I hear are about a pretty strong economy,” he said. “Labor markets certainly look stronger in the U.S. than they have in a long time. That should boost household incomes.”
Fed officials will update their economic forecasts at their April 26-27 meeting amid a strengthening labor market. The U.S. economy is estimated to have expanded at a 2.6 percent rate last quarter and forecast at a 3.2 percent rate in the second quarter, according to the median of 72 economists surveyed by Bloomberg News this month.
Bullard, 50, doesn’t vote on policy this year as part of the annual rotation. 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: Steve Matthews in Atlanta at smatthews@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz cwellisz@bloomberg.net
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