Fed’s Bullard Sees Europe Debt Crisis as Top Risk to U.S. Economic Outlook

Federal Reserve Bank of St. Louis President James Bullard said the European sovereign-debt crisis has surpassed rising oil prices to become the biggest risk to the economic outlook in the U.S.

“I would have said oil a few weeks ago, but now with those prices retreating, just sitting here today, I’m a little more worried about Europe than anything else,” Bullard said today in an interview at Bloomberg’s global headquarters in New York.

The yield on Greece’s 10-year bond rose 17 basis points today to 15.8 percent, more than twice the rate at the time of the country’s 110 billion-euro ($156 billion) rescue a year ago. European Union finance ministers for the first time this week floated the idea of extending Greece’s debt-repayment schedule as the nation struggles to meet the terms of the rescue.

Any such decision “has the potential to rock global financial markets, so it has to be handled very carefully,” Bullard said. “I do think we’ll get a solution at the end of the day because I do think there’s a lot of resolve in Europe among policy makers to keep the European project alive, keep the euro alive.” Still, “it’s hard to see exactly what they’re going to do at this point.”

Commodity prices have diminished as a risk to the economy, Bullard said. The price of oil has fallen about 12 percent since April 29, when crude traded in New York settled at $113.93 a barrel, the highest since September 2008. The drop underscores the view of Fed officials that the rise in commodity prices may have a transitory effect on overall inflation.

‘New Phase’

In a separate interview today on Bloomberg Radio’s “Bloomberg on the Economy,” Bullard said “the European sovereign-debt crisis has entered a new phase here where decisions have to be made.”

“It’s very difficult, you’re trying to negotiate between 16 or 17 countries,” he said. “Unfortunately, that creates a lot of uncertainty in the European markets.”

Bullard, 50, doesn’t vote this year on Fed monetary policy. 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 New York at jzumbrun@bloomberg.net.

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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