Federal Reserve Bank of St. Louis President James Bullard said U.S. economic growth will probably pick up to 3.5 percent next year, pushing the unemployment rate down to close to 7 percent.
“I still think it is reasonable to expect faster growth as we go forward,” Bullard said in a speech in St. Louis. “The normal expectation would be the effects start to dissipate” from headwinds that have included the European debt crisis and the slow housing recovery, he said.
The regional Fed bank president last week said he was still weighing what position to advocate at next week’s Federal Open Market Committee meeting, at which Fed officials will consider whether to make adjustments to their purchases of $40 billion of mortgage debt a month in a third round of quantitative easing. He didn’t comment on monetary policy in his prepared remarks.
Bullard told reporters after the speech the meeting would allow the committee to “review our current policy and see how that is performing against expectations” and that changes in asset purchases would be made over time in response to changes in the economic outlook.
“How far you think the Fed will go depends in part on what your view of the economic outlook of the U.S. is over the next couple of years,” he said, making a comparison to changes in interest rates in normal times. “The whole idea is to say this is going to be outcome based, not based on a fixed amount or fixed date.”
Bullard also repeated to reporters he favored removing the date from the committee’s 2015 pledge to exceptionally low rates.
“I am not happy with the date being in the statement,” he said. The statement should suggest tightening based on data “in a qualitative way,” rather than on specific thresholds for unemployment and inflation, he said.
“The calendar date I think sends a pessimistic signal about the future,” because consumers or businesses may misread that to mean slow growth for years, he said.
Measures of inflation expectations “suggest a little bit of trepidation in financial markets that the Fed might not keep inflation under control” though are not “too worrisome at this juncture,” Bullard said in his prepared remarks. Personal consumption expenditure inflation will be 2 percent this year and next, in line with the central bank’s target, he said.
“We think unemployment will continue to tick down as long as the economy remains in expansion mode,” Bullard said to the Missouri Council on Economic Education’s economic-outlook luncheon. Bullard doesn’t vote on FOMC monetary policy this year.
The unemployment rate in 2012 will be about 8 percent, Bullard said, citing St. Louis Fed estimates made prior to the most recent decline in the jobless rate below that mark.
“Europe is in recession” and “really struggling with this crisis,” he said. “For 2013, we are only seeing a small amount of growth, not a rapid rebound” and the region’s debt crisis may take “many years to resolve.”
Recent economic data have been largely better than expected, with retail sales rising 1.1 percent in September, Commerce Department figures showed today. That followed improvements in housing, consumer confidence and the unemployment rate. The Fed’s Beige Book report on regional conditions last week said the U.S. economy was expanding “modestly” last month, supported by improvements in housing and auto sales, even as the labor market showed little change.
Bullard, who was the first policy maker to voice support for asset purchases in 2010, has been viewed as a bellwether for investors. His 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.
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.