Fed’s Bullard Says Economy to Weather Shocks, Strengthen
Federal Reserve Bank of St. Louis President James Bullard said he’s still optimistic on the U.S. economy this year, even after a weaker-than-projected first quarter and global risks to growth.
“The outlook for the remainder of 2011 remains reasonably strong,” Bullard said in remarks today in Louisville, Kentucky. Turmoil in the Middle East and North Africa, the tsunami in Japan, the U.S. budget deficit and the European sovereign debt crisis are likely to be “resolved without becoming global macroeconomic shocks,” he said.
Bullard is among the last Fed officials to speak before policy makers next meet April 26-27, where they will update economic projections after recent reports of a stronger labor market and rising inflation. Bullard has said since February that the Fed should trim its plan to buy $600 billion in U.S. Treasuries through June while cautioning he doesn’t see enough support from his colleagues for that change.
Once the Fed completes the Treasury purchases, the policy- setting Federal Open Market Committee may “be on hold then for a while,” Bullard told reporters after the speech. “‘Hold’ would mean that the balance sheet stays at whatever size it’s at, and that the policy rate stays very low and we keep” the language stating it will remain low for an “extended period,” he said.
Bullard reiterated he would like to reduce the Fed’s total bond purchases, saying, “I don’t know if I could rally any support for this or not, but I do think that’s a reasonable thing to do.”
Balance Sheet
“I prefer to take action on the balance sheet first and then come to interest rates a little bit later,” he told reporters. “One thing you could do with the balance sheet is allow the runoff to start to occur again,” Bullard said.
Prior to the Fed’s August 2010 meeting, housing debt on the Fed’s balance sheet was not replaced when it matured, causing the central bank’s total assets to decrease. Assets peaked at $2.35 trillion on May 19, 2010, after the first round of large- scale asset purchases and fell to $2.3 trillion as assets matured. Since the second round of purchases began, Fed assets have climbed to $2.67 trillion.
The Commerce Department will report next week that the U.S. economy grew at a 1.8 percent annual pace in the first quarter after expanding at a 3.1 percent rate in the prior three months, according to the median forecast in a Bloomberg News survey. Like Bullard, economists expect the economy to pick up strength in the remainder of the year and grow 2.9 percent in 2011, according to a separate Bloomberg survey.
The U.S. unemployment rate fell to 8.8 percent in March, the lowest level in two years, as the economy has added 478,000 jobs so far in 2011.
Bullard noted the recent improvement in the labor market. “I expect this will accelerate during 2011,” Bullard said at the event, sponsored by the Kentucky Department of Financial Institutions, “U.S. firms have cash and are looking for opportunities to invest.”
Even with the improvement, about 6.3 million people have been out of work and looking for a job for more than six months and the employment-to-population ratio is lower than it was when the recession ended as companies have been slow to hire.
Bullard told reporters after the event that “it’s true that the most recent data has been a little bit weaker” on the U.S. economy.
‘Fairly Good’
“I still think that the outlook for the economy is fairly good,” he said, citing anecdotal reports from around his district. “I don’t see the kind of household pullback on consumption that we saw in 2008.”
The cost of living in the U.S. rose in March for a ninth consecutive month, led by increases in food and fuel costs that drove prices 0.5 percent higher for the second month in a row, the Labor Department said last week. Prices have risen 2.7 percent in the last year. Excluding food and energy, prices have risen 1.2 percent.
While many Fed officials prefer to use core inflation, or prices excluding food and energy, in their forecasts, Bullard said that total inflation “is the ultimate objective of monetary policy with respect to prices.” “Core inflation is not an objective in itself,” he said in the presentation.
Explicit Target
Bullard said that having an explicit target for inflation would help the central bank guide policy and expectations.
“Inflation targeting is another way to force more accountability to the central bank and anchor longer-term expectations,” he said.
Fed presidents rotate voting on monetary policy, and Bullard, 50, does not vote this year. 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: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net; Timothy R. Homan in Louisville, Kentucky, at thoman1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz cwellisz@bloomberg.net
Rate this Page