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Bullard Opposes Fed Bond Buying as U.S. Economy Improves

Bullard Opposes Fed Bond Buying With U.S. Economy Improving
Federal Reserve Bank of St. Louis President James Bullard was the first Fed official in 2010 to call for a second round of asset purchases. Photographer: Scott Eells/Bloomberg

Federal Reserve Bank of St. Louis President James Bullard said recent signs of improvement in the economy would prompt him to oppose any new program by the Fed to buy bonds to reduce borrowing costs.

“I wouldn’t do it right now,” Bullard said today in a CNBC interview. “If it was just me and we just have the data up until today I wouldn’t take a decision right now.”

Many Fed policy makers said additional stimulus would probably be needed soon unless the economy shows signs of a durable pickup, according to minutes of their July 31-Aug. 1 meeting released yesterday. Bullard said “the minutes are a bit stale” because “we have some data since then that is stronger.”

Retail sales increased 0.8 percent in July, more than forecast by economists, and companies hired 163,000 workers, the most in five months.

“It would be unusual for the Fed to take action based on this data constellation,” said Bullard, 51, who doesn’t vote on policy this year.

A report today showing the number of Americans filing applications for unemployment benefits rose to a one-month high last week is “consistent with moderate payroll growth” and doesn’t indicate a deterioration, Bullard said.

U.S. and European stocks fell as investors weighed whether central banks will ease monetary policy further amid concern over the euro-area crisis. The Standard & Poor’s 500 Index fell 0.5 percent at 10:07 a.m. New York time.

Differing Views

Fed officials have offered differing policy views this week, with Fed Chicago Bank President Charles Evans endorsing more easing and Atlanta’s Dennis Lockhart saying there are risks to moving “too aggressively.”

“I don’t need to see any more data to know that I think we should have more accommodation,” Evans told reporters today in Beijing, referring to the U.S. “I certainly would applaud anybody who takes action in order to strengthen their economies” around the world, including China, he said.

Fed Chairman Ben S. Bernanke, who last month said a third round of bond buying was an option, will update his policy outlook on Aug. 31 with a speech to the Kansas City Fed’s annual symposium at Jackson Hole, Wyoming.

Bullard said he might favor easing if the U.S. economy were to deteriorate. In that case, asset purchases should be done “month by month” in an open-ended program whose size would depend on the course of the economy, he said.

First Call

Bullard was the first Fed official in 2010 to call for a second round of asset purchases. In speeches this year, he has said he sees no need for additional easing and has urged the FOMC to “pause” to assess developments.

Bullard’s speeches and interviews moved the two-year Treasury yield more than any other FOMC member last year, according to a Macroeconomic Advisers report released Jan. 27.

In the first round of bond purchases starting in 2008, the Fed bought $1.25 trillion of mortgage-backed securities, $175 billion of federal agency debt and $300 billion of Treasuries. In the second round, announced in November 2010, the Fed bought $600 billion of Treasuries.

The St. Louis Fed official said that he and other Fed policy makers were disappointed in growth of about 1.5 percent in the first half of the year. A resumption of 2 percent or greater growth seems likely in the second half, he said.

‘Good Enough’

“That’s not a great outcome but to me that is a good enough outcome to keep us on hold,” Bullard said on CNBC. Asked if “a major” program of buying assets, or quantitative easing, is warranted, he said, “I don’t think so.”

“The committee has said and would be determined to act if things deteriorated further,” he said.

Reducing the interest rate paid on excess reserves that banks keep with the Fed remains an option, Bullard said. “I’d be willing to consider or get more thought” about the idea, he said.

Bullard, who has said this year he expects the FOMC to begin tightening policy in late 2013, said he might need to push back his date for the first interest-rate increases. “For right now I am sticking with it, but we’ll see,” he said.

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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