Federal Reserve Bank of St. Louis President James Bullard said the Fed “inappropriately timed” a plan to trim $85 billion in monthly bond purchases amid slowing inflation.
“A more prudent approach would be to wait for tangible signs that the economy was strengthening and that inflation was on a path to return toward target before making such an announcement,” Bullard said today in a news release.
Bullard this week dissented from a statement by Fed policy makers not to change their current pace of monthly asset purchases. He repeated today that officials should do more to signal they are willing to defend their 2 percent inflation goal in light of low readings for consumer-price growth.
“Bullard apparently saw deeper and more persistent risks to medium-term prices than did other members of the committee,” said Nathan Sheets, global head of international economics at Citigroup Inc. and former head of the Fed’s international finance division. “The chairman emphasized transitory factors, but it is possible that the ongoing disinflation is driven by some more sustained softness in the U.S. and global economy.”
Price gains as measured by the personal consumption expenditures price index rose 0.7 percent for the year ending in April, below the central bank’s 2 percent goal.
The St. Louis Fed president has been a leading voice for open-ended bond buying known as quantitative easing, with no end date set in advance and the size of purchases to change based on new economic data.
Chairman Ben S. Bernanke put investors on notice after a June 18-19 policy meeting that the Fed is prepared to begin phasing out its latest asset-purchase program this year. The central bank will probably taper its bond buying in 2013 and halt purchases around mid-2014 so long as the economy performs in line with its projections, Bernanke said June 19.
Bullard said it was a mistake to make such an announcement the same day as the Fed marked down forecasts for economic growth and inflation for this year. Fed officials projected this week the economy will grow 2.3 percent to 2.6 percent in 2013 compared with their March estimates for growth of 2.3 percent to 2.8 percent.
The St. Louis Fed chief also said the Federal Open Market Committee statement was a “step away” from “state-contingent monetary policy.”
“Policy actions should be undertaken to meet policy objectives, not calendar objectives,” he said, according to the statement.
The yield on the 10-year Treasury note was little changed at 2.41 percent at 7:40 a.m. The yield climbed to 2.47 percent yesterday, the highest level since Aug. 8, 2011, and has increased 27 basis points this week, the most since July 2011.
The Fed (TREFQE2) will trim its purchases to $65 billion in September and end buying in June 2014, according to the plurality of estimates by economists in a June 19-20 Bloomberg survey.
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.
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