Bullard Says Fed Policy Is ‘Appropriately Easy’: Tom Keene

St. Louis Fed President James Bullard
Federal Reserve Bank of St. Louis President James Bullard. Photographer: Scott Eells/Bloomberg

James Bullard, president of the Federal Reserve Bank of St. Louis, said current central bank policy is “appropriately easy” and another recession is unlikely.

“We probably avoided this recession scare that we’ve been having since August,” Bullard said today in a radio interview in St. Louis on “Bloomberg Surveillance” with Tom Keene. Recent economic reports have “surprised on the upside,” he said.

Additional asset purchases are the central bank’s “most potent” weapon, he said, while adding he wouldn’t support more bond buying. “I think policy is already appropriately easy, so I don’t think we’re in any position to do that now,” he said.

Policy makers voted Sept. 21 to extend the maturities of the bonds in the Fed’s portfolio in a bid to push down mortgage and other loan rates and spur growth. Some officials last month wanted to keep further asset purchases as an option to boost the economy as policy makers saw “considerable uncertainty” that U.S. growth will pick up, according to minutes of their meeting, released last week.

Recent economic data support the Fed’s view, expressed in its September statement, that there will be “some pickup in the pace of recovery over coming quarters.”

Employers added 103,000 jobs in September, up from a gain of 57,000 the month before. Retail sales last month rose by the most in seven months, and factory production climbed. The reports have prompted Macroeconomic Advisers to raise its third-quarter estimate for growth to 2.7 percent, economist Chris Varvares said in a later joint interview with Bullard on Bloomberg Television.

“There is important news here,” Bullard said of the growth estimate. “In August, you were looking at people really marking up their recession probabilities a lot. Those are now being marked back down.

‘‘Even though the financial stress is still high, I think there is more faith that the Europeans will come to some kind of solution,’’ Bullard said. ‘‘It won’t be fast. It will go long and be bumpy. They will not solve it in a week.’’

Pace of Expansion

The economy probably expanded at a 2 percent annual pace in the third quarter, according to the median forecast in a Bloomberg News survey of economists taken from Oct. 5 to Oct. 11. That compares with growth of 1.3 percent in the second quarter and 0.4 percent in the first three months of the year.

‘‘I think we’ll get away now without a recession,’’ Bullard said, saying he expected growth of 2 percent to 2.5 percent in the second half of this year. ‘‘It’s not great but it’s better than what people were expecting during the summer.”

Bullard attributed the sluggish growth to the aftermath of the housing bubble last decade and noted that investment in the economy has not recovered to pre-recession levels.

“We got the upside of the bubble during 2004, 2005, 2006 when everything was going so well. Now we’ve got the downside of the bubble in 2011 and 2012.”

Housing construction won’t rebound much, Bullard added in the television interview.

“It is just not realistic to think that will come back very rapidly,” he said. “It is going to be a long, slow, painful process to get residential housing and nonresidential structures back on an even keel.”

‘Massive’ Shortfall

Fed policy makers differed this week over the central bank’s ability to boost growth, with the Chicago Fed’s Charles Evans calling for more action to fight a “massive” shortfall in employment and Richmond’s Jeffrey Lacker saying further steps would probably serve only to stoke inflation.

“If we sit on our hands as the economy withers relative to our mandate, then we could take a huge hit to our credibility,” Evans said in a speech in Detroit. Lacker, speaking in Salisbury, Maryland, said there’s little more the Fed can do because “the strength of this recovery is going to be relatively independent of our monetary policy choices.”

Lacker’s opposition to further monetary easing aligned him with Minneapolis Fed President Narayana Kocherlakota, Richard Fisher of Dallas and Charles Plosser of Philadelphia, who dissented from last month’s decision to replace $400 billion of short-term Treasuries in the Fed’s portfolio with longer-term bonds, a strategy dubbed Operation Twist.

Bullard has said he supports Operation Twist, although its impact on the economy is likely to be limited. He doesn’t vote on the Federal Open Market Committee this year.

‘Go Ahead’

“There’s some analysis inside the Fed that suggested this would have some impact so we’ll go ahead with it,” Bullard said today.

Bullard opposed the Fed’s pledge, made in August and maintained this month, to hold its benchmark interest rate near zero at least through the middle of 2013 so long as unemployment stays high and the inflation outlook is “subdued.” The target rate has been in a range of zero to 0.25 percent since December 2008.

“You should make policy according to the state of the economy, not according to the calendar,” Bullard said today. “It’s very awkward for the committee to be trying to move that date around.”

Bullard, 50, joined the St. Louis Fed’s research department in 1990 and became president of the regional bank in 2008.

Download: Bullard Says Policy Appropriate


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