Federal Reserve Bank of St. Louis President James Bullard said the Fed is in no hurry to reduce its record bond buying with inflation running below its 2 percent target.
A voter on monetary policy this year, Bullard was one of the first Federal Open Market Committee officials to urge slowing the pace of bond purchases in 2013 if warranted by economic reports, a position taken by Chairman Ben S. Bernanke last month. In 2010 Bullard initiated calls for a second round of bond buying, which ran from November 2010 until June 2011.
The yield on the benchmark 10-year Treasury note fell today to a three-month low, showing there’s little concern among investors about inflation risk. The note yielded 1.81 percent in New York, down from 1.86 percent yesterday.
Consumer prices rose just 1.3 percent in February from a year earlier, according to an inflation gauge favored by the Fed, and growth has been too weak to generate jobs for millions of fired workers. Unemployment in February was 7.7 percent.
Tarullo, speaking on CNBC, said that while some economic data have exceeded expectations, he would like to see more consistent job growth before he can support curbing the bond buying.
“What I’d like to see is some good healthy peaks that have job creation well above the rate of new entrants into the labor market, followed not by valleys that take back some of that progress but at the very least by a nice plateau that can be the basis for some more peaks later,” he said.
The benefits from bond buying outweigh the risks from the record expansion of the Fed’s balance sheet, Williams said. He does not vote on policy this year.
“It will take more solid evidence to convince me that it’s time to trim our asset purchases,” Williams said in a speech in Los Angeles. “Continued progress depends critically on support from the Federal Reserve.”
Monetary policy is currently “appropriate,” Bullard said in the radio interview, adding that he didn’t call for a reduction in asset purchases at the FOMC’s meeting in March.
“I don’t think we have to be in any hurry” to cut stimulus, Bullard said. “The committee has more comfort in a situation in which inflation is low.”
The FOMC has leeway to review economic data in the next few months and determine whether to pare back asset purchases known as quantitative easing, Bullard said.
“We are not forced into a decision right now,” he said. “If we continue to get good data on the economy, then we will have a decision to make.”
The FOMC has the option to expand its monthly purchases if inflation were to slow, Bullard said today to reporters.
“If inflation drifted down in conjunction with renewed economic weakness,” the committee may consider increasing its monthly bond buying, he said.
Financial markets don’t show signs of “frothy behavior” that would warrant Fed action, Bullard said, adding that the central bank will watch for any risks of financial instability including asset price bubbles.
The economy is likely to grow around 3 percent this year, Bullard said. “Things are pretty good right now for the U.S. economy,” he said. “The surprise has been to the upside.”
Recent economic data have shown a pickup in growth and an improvement in the labor market. About 195,000 jobs were added last month and the unemployment rate stayed at 7.7 percent, according to the median estimates of economists surveyed by Bloomberg ahead of an April 5 report.
Bullard said he is less worried than some private forecasters about a “spring swoon,” or a mid-year slowdown that has occurred during the past two years. Risks from the European debt crisis have waned during the past two years, so global conditions probably won’t impair growth, he said. Also, fiscal tightening may crimp consumer spending less than many economists estimate.
The St. Louis Fed chief said when it comes time to slow purchases, he favors reducing the pace by small increments in response to changes in the economy.
“I would be very comfortable moving in small amounts -- $10-or-$15 billion at a time,” Bullard said in the interview at the St. Louis Fed. “We are getting much closer” to the committee agreeing to a tapering approach, as indicated by Bernanke’s comments last month.
Small changes in bond buying probably won’t disrupt stock or bond markets, Bullard said. In contrast, a sudden halt in the buying could jolt investors, he said.
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