Federal Reserve Bank of St. Louis President James Bullard said economic reports this year have been stronger than forecast and he expects the central bank to raise its target rate by 2013.
“Generally speaking, the U.S. economy has done better than expected in the first part of 2012,” Bullard said today in Louisville, Kentucky. “My own forecast has rates going up a little sooner” than other central bankers, or “late 2013.”
Several Fed policy makers said slowing growth or higher risks to their economic outlook could warrant additional action to sustain the recovery, according to minutes of their April meeting released yesterday. The Federal Open Market Committee on April 25 reiterated its expectation that subdued inflation and economic slack will probably warrant “exceptionally low levels for the federal funds rate at least through late 2014.”
“Some sectors of the economy are performing well” including agriculture and technology, and “the housing sector is doing a little bit better than it has been,” Bullard said to the Rotary Club of Louisville. “I see rays of hope there.”
While economic data has been stronger, Bullard told reporters after his speech the reports over the last two months have been somewhat less positive.
“Some of the data has been mixed,” Bullard said. “It hasn’t been significant enough to make a material difference in my forecast at this point. If it got to be significant I would have to change my forecast.”
Reports today showed manufacturing in the Philadelphia region unexpectedly shrank this month and the index of leading indicators dropped in April for the first time in seven months.
Bullard, asked about JPMorgan Chase & Co.’s $2 billion trading loss, said large banks should be broken up into smaller businesses that can be more easily managed.
“I would back my colleague Richard Fisher in saying that we should split up these larger banks,” Bullard said in response to audience questions, citing comments by the Dallas Fed president. “It would be simpler to say we want smaller institutions so they can safely fail if they need to fail.”
“Even a good player like JPMorgan Chase can lose a lot of money,” Bullard said. “This is why you want these big companies to have plenty of capital, and they are in better shape with respect to capital than they were a couple of years ago.”
Monetary Policy Report
Bullard also told reporters that Fed officials are discussing the possibility of a regular monetary policy report as a way to bolstering communications. The St. Louis Fed president has urged such a quarterly document as a way to “provide a more fulsome discussion of the outlook for the U.S. economy.”
“It is one option that is on the table,” he said. “It is something I have talked about. Certainly nothing has been decided at this point. We are working on it and we will see where it goes.”
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 by the central bank. The Fed pushed down its target interest rate close to zero in December 2008 and has engaged in two rounds of asset purchases totaling $2.3 trillion to boost the economy.
Bullard, 51, joined the St. Louis Fed’s research department in 1990 and became president of the regional bank in 2008. His district includes Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.