Federal Reserve Bank of St. Louis President James Bullard said additional asset purchases are not needed with inflation including food and fuel higher than the central bank’s 2 percent target.
“I wouldn’t take QE3 off the table ever,” Bullard said in a CNBC interview, referring to a third round of purchases or quantitative easing. “We should use it only if the economy deteriorates and especially if the inflation numbers start to drift down into disinflation or deflation. Headline inflation is above target.”
Bullard, who doesn’t vote on monetary policy this year, was the first Fed official in 2010 to call for a second round of asset purchases. Fed Chairman Ben S. Bernanke said in a press conference after the Jan. 25 Federal Open Market Committee meeting that the Fed is keeping the option open of buying more bonds.
Bullard said recent economic reports reinforce his view that the U.S. economy may accelerate to about 3 percent this year, and the risks from the European debt crisis have dropped with new policies from central bankers there.
“The economy is looking brighter,” Bullard said. “The data is better, so it is a natural time for the committee to be on pause for awhile.”
Bullard said a drop in the number of Americans filing first-time claims for jobless benefits to a four-year low indicates that the U.S. unemployment rate will likely fall further this year and could end at around 7.8 percent.
The St. Louis Fed president said his forecast suggests the first tightening by the central bank might occur in 2013, though the wide range of views among policy makers shows how uncertain forecasts are beyond a few months.
Bullard said the Fed would need to consider the impact of any further easing on commodities prices and inflation at a time that oil prices are rising.
“That’s a serious issue for the committee to consider,” he said in the CNBC interview. “I think it would be very worrisome that you have the situation in Iran being a wild card for global oil prices. You wouldn’t want to feed into that.”
The Fed on Jan. 25 said subdued inflation and slack in the economy are likely to warrant keeping rates exceptionally low at least through late 2014, extending a previous date of mid-2013 or later, and policy makers disclosed forecasts for the first time for the target interest rate.
“This is a best guess,” Bullard said. “Trying to make promises that far in the future is not a credible thing to do” because the economic outlook may change.
Bullard also said he wasn’t opposed to a congressional proposal that would give the central bank a single mandate of stable prices rather than its current dual mandate that also includes full employment.
“Providing stable prices in the economy” is the way to achieve “the best employment that you can get,” he said. “It’s okay for me to go to a single mandate.”
Bullard was in New York to discuss a research paper on housing at the U.S. Monetary Policy Forum Initiative on Global Markets hosted by the University of Chicago Booth School of Business.
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