Federal Reserve Bank of St. Louis President James Bullard said policy makers should have taken a “wait-and-see posture” on new bond buying until they had a clearer picture of the global economy.
“I didn’t really think the committee had a good case for taking a really big action,” Bullard, who doesn’t vote on monetary policy this year, said in a CNBC interview today. “I would have kept it in our pocket for a little bit and really see if the global slowdown is going to impinge on the U.S. economy and what the next steps in Europe are going to be.”
The Federal Open Market Committee said Sept. 13 that it will undertake a third round of quantitative easing by purchasing mortgage-backed securities at a pace of $40 billion per month until labor markets “improve substantially.” Policy makers are using unconventional tools to attack a jobless rate stuck above 8 percent since February 2009.
Bullard said “unemployment will continue to tick down” through the end of the year and that the world’s largest economy is “still on track” for 2 percent growth in the second half of 2012. A continuation of the global economic slowdown and U.S. lawmakers failing to address looming tax increases and spending cuts are key risks to growth, he said.
“It could be that global growth drags down the U.S. and sends us into a slower growth environment or even recession,” Bullard said. “I would have wanted to see more data on that and see how that’s unfolding before we’d taken more action.”
Bullard said the economy is suffering while lawmakers delay agreements to avoid the so-called fiscal cliff of $600 billion of tax increases and spending cuts that will kick in automatically at the beginning of next year unless Congress acts. The Congressional Budget Office said in an Aug. 22 report that fiscal tightening of that magnitude could cause a recession.
“What’s bad for the U.S. economy is that our political system insists on brinksmanship,” Bullard said. “The uncertainty around the future of the U.S. economy is a serious damper” on businesses activity because “they can’t get enough clarity to know if they should make a major investment.”
The U.S. economy grew less than previously forecast in the second quarter, the Commerce Department said today. Gross domestic product expanded at a 1.3 percent pace in the second quarter after growing at a 2 percent rate from January through March. The revision, the third estimate for the quarter, compared with a prior estimate of 1.7 percent.
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.