Federal Reserve Bank of St. Louis President James Bullard said his “main message” is that the central bank’s monetary policy will remain easy for a long time, while the possibility of tapering the bond-buying program may be gaining momentum among policy makers.
“Fed policy is very easy, and it’s going to stay easy for a long time,” Bullard said in an interview today on CNBC television. “That’s my main message this morning.”
The Federal Open Market Committee in the minutes of its Jan. 29-30 meeting indicated it may consider slowing the pace of asset purchases, as officials extended a debate over whether record monetary easing risks unleashing inflation or fueling asset-price bubbles. After the minutes were released on Feb. 20, the Standard & Poor’s 500 Index closed lower than on any trading session since November, declining 1.2 percent to 1,511.95, as oil and gold also fell on bets the central bank would curb stimulus earlier than expected.
The policy making FOMC has pledged to keep the main interest rate near zero as long as joblessness is above 6.5 percent and inflation is projected to be no more than 2.5 percent. The panel hasn’t specified an end-date for its program of $85 billion in monthly asset purchases, saying only that it will continue until the labor market improves “substantially.”
“The idea of tapering the program at some point in the future may be gaining steam on the committee,” Bullard said. “The committee should acknowledge gradual improvement when we see it or when we think we see it, and then gradually taper back the program.”
Bullard, who is a voting member of the FOMC this year, said he expects the U.S. economy to grow 3 percent in 2013.
“I still think that’s the best prediction for the year,” he said. Global uncertainty has decreased as Europe has stabilized, and he thinks “we’re still in good shape” moving forward, Bullard said.
Bullard said he doesn’t expect $85 billion in automatic spending cuts currently set to take effect March 1, to seriously damage the economy.
“I think it would only have a minor effect on growth in 2013,” he said. “There has been some anticipation of those effects already, so it’s not as if the sequester goes into effect and all the sudden everyone is shocked by this.”
Private companies can see that something is going to happen, Bullard said.
“I think it gets spread out more than people typically report,” he said. “They kind of have the idea that as soon as Congress passes it, it’s going to come as a complete shock to the private sector, but that isn’t the way things work.”
Bullard said the economy has improved modestly in recent months. He cited the unemployment rate, which, at 7.9 percent, is down from 8.3 percent a year ago, and the addition of about 200,000 jobs a month.
“I would consider those encouraging signs, but we’ve got further to go,” Bullard said.
Bullard said he supports the threshold-based model the central bank adopted for the first time in December. In the past, the Fed gave date-based guidance for when it would adjust policy.
“I think the forward guidance is better, I think the asset purchases are more potent. This is a monetary policy that really packs a punch,” Bullard said. He said he doesn’t see an imminent change in the 6.5 percent jobless rate target.
“We just adopted the thresholds, I don’t think we’re going to change them anytime soon here,” he said.