Fed’s Bullard Says FOMC May Go ‘On Hold’ as Recovery Unfolds
Federal Reserve Bank of St. Louis President James Bullard said the Federal Open Market Committee may put policy on “hold,” leaving record monetary stimulus in place to ensure the economic recovery is gaining ground.
“Past behavior of the FOMC indicates that the Committee sometimes puts policy on hold,” Bullard said today according to prepared materials for a speech in Little Rock, Arkansas. “This gives the committee more time to assess economic conditions.”
“Hold” would mean that the Fed’s target interest rate remains near zero, the central bank continues to pledge to keep rates low for an “extended period,” and the Fed would maintain the size of its balance sheet at record levels, Bullard said, without saying whether or not this was his preference.
Fed Chairman Ben S. Bernanke and the FOMC are developing their plans for policy after they finish their program announced in November to buy $600 billion of Treasuries through June in a second round of so-called quantitative easing. That is aimed at combating too-low inflation and lowering an unemployment rate stuck at 8.8 percent or higher since April 2009.
Oil prices are unlikely to derail the recovery, Bullard said. “Increases in oil prices like the ones we have recently experienced have occurred many times in the past without seeming to have much effect on the economy,” he said at Arkansas Day with the Bank Commissioner, an event sponsored by the state’s banking regulator.
‘Extreme Ones’
“It is only the really extreme ones that are reliably related to U.S. recessions,” Bullard said of oil price shocks, “This gives me some confidence that the U.S. can weather the current price shock without a significant slowdown.”
The Labor Department reported today that American employers added 244,000 jobs in April, after adding 221,000 in March and 235,000 in February. The jobless rate climbed to 9 percent, the first increase since November.
Bullard noted that inflation expectations have increased in recent months. The level of inflation expected by investors, as measured by the spread between inflation-protected securities and nominal bonds over the next 5 years has risen to 2.3 percent from 1.7 percent at the start of the year and 1.1 percent in August of 2010.
“To the extent expected inflation continues to rise, financial conditions continue to ease,” Bullard said.
To help ensure the Fed’s credibility, Bullard repeated his call for the central bank to adopt an inflation target.
Inflation Targeting
“Inflation targeting is another way to force more accountability to the central bank and anchor longer-term inflation expectations,” he said. Such a target would “make the central bank say what it intends to do, and hold the central bank accountable for achieving the goal,” 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 reporter on this story: Joshua Zumbrun in Little Rock, Arkansas at jzumbrun@bloomberg.net
To contact the editor responsible for this story: Kevin Costelloe at kcostelloe@bloomberg.net
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