Bullard Says Fed Shouldn’t Rush to Ease Further as Recovery Picks Up Speed

James Bullard, president of the Federal Reserve Bank of St. Louis, said recent economic reports point to stronger economic growth, and policy makers shouldn’t rush to ease further.

“The data have come in stronger than expected, so I think the logical thing now is to wait and see,” Bullard said in an interview in New York today at the Bloomberg Hedge Fund Conference hosted by Bloomberg Link. “See if we continue to get a good read on the holiday season and start out the New Year stronger or weaker, and also assess the situation in Europe and see how that feeds back to the United States.”

Fed officials are debating whether the central bank should resume large-scale purchases of securities to push down an unemployment rate that has been stuck near 9 percent or higher for more than two years. The central bank has said the European sovereign-debt crisis poses a risk to the U.S. expansion, and some policy makers at the last meeting Nov. 1-2 said the Fed should consider easing further, according to minutes of the session.

Bullard said growth next year will probably accelerate to a pace of 3 percent to 3.5 percent. The world’s largest economy expanded at a 2 percent annual pace in the third quarter, compared with 1.3 percent in the second quarter and 0.4 percent in the first three months of the year.

“I think we can grow somewhat stronger in 2012 than we have in the second half of 2011,” Bullard, 50, said. “The real question is what is this tail risk in Europe and how big is this tail risk coming from Europe.”

Manufacturing Index

Manufacturing in November expanded faster than forecast, a report from the Institute for Supply Management showed today. The Tempe, Arizona-based institute’s manufacturing index rose to 52.7 last month from 50.8 a month earlier. Fifty is the dividing line between growth and contraction, and economists surveyed by Bloomberg News projected the gauge would climb to 51.8.

Reports yesterday on private employment, business activity and contract signings for purchases of existing homes all exceeded forecasts.

Bullard also said he backs yesterday’s decision by the Fed and five other central banks to lower the cost of emergency dollar borrowing by overseas banks.

“I’m happy to support the chairman on this effort to lower the penalty rate on these dollar swaps,” he said, referring to Fed Chairman Ben S. Bernanke.

Global Rally

Bullard spoke a day after the show of force by central banks sparked a global rally in stocks on optimism it will help Europe overcome its debt crisis. The euro rose for a second day today and European bonds climbed, pushing the yield on the French 10-year note down by the most since 1991.

The Fed joined with the European Central Bank and the central banks of Canada, Switzerland, Japan and the U.K. to cut the pricing on dollar liquidity swaps.

Under the program, the Fed lends dollars to the ECB and other central banks in exchange for currencies including euros. The central banks then lend dollars to commercial banks in their jurisdictions through an auction process.

The swap arrangements were revived in May 2010 when the debt crisis in Europe worsened. The Fed three months earlier had closed all swap lines opened during the financial crisis triggered by the subprime-mortgage meltdown in 2007.

The Fed’s policy making Open Market Committee voted 9-1 for the swap action in a Nov. 28 videoconference, with Richmond Fed President Jeffrey Lacker dissenting. Fed Presidents rotate voting on the FOMC, with Bullard next voting in 2013.

‘Fiscal Policy’

Lacker said he opposed the Fed decision because “such lending amounts to fiscal policy, which I believe is the responsibility of the U.S. Treasury.”

Bullard joined the St. Louis Fed’s research department in 1990 and became president of the regional bank in 2008. His district includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

The St. Louis Fed district is home to companies such as Wal-Mart Stores Inc. (WMT) in Bentonville, Arkansas, the world’s largest retailer, St. Louis-based Monsanto Co. (MON), the world’s biggest seed company and Memphis, Tennessee-based FedEx Corp. (FDX), operator of the world’s biggest cargo airline.

To contact the reporters on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net; Matthew Winkler in New York at mwinkler@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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