Fed’s Bullard Opposed to Tying Policy to Rate of Unemployment

Federal Reserve Bank of St. Louis President James Bullard said he opposes tying monetary policy to a target for the unemployment rate, which he believes isn’t the best measure of job-market health.

“I have warned the committee against using specific numbers on unemployment,” Bullard said to reporters today after a speech in South Bend, Indiana, referring to the Federal Open Market Committee.

“Unemployment is a fickle variable,” he said. “It can go up and down because of labor-force participation changes as has happened in recent years and even the most recent unemployment report,” he said. “We would be better served by taking an overall approach to labor-market conditions and assessing the situation that way.”

Minneapolis Fed President Narayana Kocherlakota said today in a speech that the central bank should hold interest rates at around zero until unemployment drops below 5.5 percent. The comment aligned him with the FOMC’s decision last week to continue purchasing bonds until labor markets “improve substantially.”

European unemployment has been elevated because of changes in the structure of the labor market, Bullard said. Policy makers “would still be waiting” if they had tied policy to a low level of joblessness.

Bullard said he opposed the FOMC decision last week to begin a third round of asset purchases. The U.S. economy is expanding at about a 2 percent rate in the second half and will probably to accelerate to more than 3 percent growth next year, 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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