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Bullard Sees Fed Continuing Bond Buying as Inflation Stable

Federal Reserve Bank of St. Louis President James Bullard
Federal Reserve Bank of St. Louis President James Bullard said, “I think it’s going to be a while on the QE program.” Photographer: Sam Hodgson/Bloomberg

Federal Reserve Bank of St. Louis President James Bullard said the central bank probably will press on with its asset purchases as contained inflation expectations give it time to continue the quantitative easing.

“I think it’s going to be a while on the QE program,” Bullard, a voting member of the policy-making Federal Open Market Committee this year, said in a television interview today on “Bloomberg Surveillance” with Tom Keene and Mike McKee. “We’ve got a lot of room to maneuver here.”

Opponents of the unprecedented asset purchase program that aims to boost growth and hiring have said it could spur inflation. Bullard said that a greater concern now, with price increases below the Fed’s target, is that “we need to defend our inflation target from the low side.”

The Fed said last month that inflation has been “somewhat below” its long-run target of 2 percent. An index of inflation tied to spending patterns rose 1.2 percent in the 12 months through January.

Stocks rose after the Labor Department reported payrolls increased by a greater-than-forecast 236,000 in February and the unemployment rate unexpectedly fell to a five-year low of 7.7 percent. The Standard & Poor’s 500 Index rose 0.4 percent to 1,550.51 at 9:31 a.m. in New York. Treasuries declined, pushing up the yield on the benchmark 10-year note to 2.06 percent from 2 percent late yesterday.

Good Number

Bullard, who was interviewed before the jobs report, said monthly payroll growth of around 200,000 is “a good number for the U.S. economy.” He projected on Feb. 21 that unemployment may drop to 6.5 percent by the middle of next year.

The FOMC is debating how long to continue $85 billion in monthly purchases of Treasuries and mortgage bonds. The committee, which meets March 19-20 in Washington, has said it will keep the main interest rate near zero as long as the jobless rate remains above 6.5 percent and inflation isn’t projected to exceed 2.5 percent.

Policy makers haven’t set a definitive end date for the buying, saying that it will continue until the labor market improves “substantially.”

Bullard also said today that the most recent drop in new claims for unemployment benefits is an “encouraging” sign for the economic recovery. Initial jobless claims fell 7,000 to 340,000 in the week ended March 2, pushing the monthly average to a five-year low, Labor Department data show.

“Claims doesn’t get much lower than this, even in real good times,” Bullard said.

Exit Strategy

Bullard said the committee started talking about its exit strategy from monetary easing in 2011 and could return to those discussions.

“This is a big balance sheet and it could be hard to unwind,” Bullard said. “Long ago in the spring of 2011 the committee actually talked about and sort of outlined an exit strategy. The chairman has said recently that maybe we’ll have to revisit that because the balance sheet is bigger now.”

Chairman Ben S. Bernanke and Vice Chairman Janet Yellen in speeches this month affirmed a commitment to record stimulus that has pushed the central bank’s balance sheet beyond $3 trillion.

The committee in the minutes of its Jan. 29-30 meeting indicated that it may consider slowing asset purchases, as officials debate whether the monetary easing risks unleashing inflation or fueling asset-price bubbles.

Adjusting Purchases

Bullard has been an advocate of adjusting asset purchases based on changes in the economic outlook.

February’s payroll growth beat the 165,000 median estimate of 90 economists surveyed by Bloomberg. The economy added 119,000 workers in January, revised down from 157,000, the Labor Department data showed.

Gross domestic product grew at a 0.1 percent annual rate in the fourth quarter, up from a previously estimated 0.1 percent drop, revised Commerce Department figures showed Feb. 28. Federal military outlays declined at a 22 percent annual pace, the largest drop since 1972.

The Fed said March 6 in its Beige Book business survey, based on reports from the 12 regional Fed banks, that the economy grew at a modest to moderate pace across most of the country amid rising demand for homes and autos.

Bullard, 52, joined the St. Louis Fed’s research department in 1990 and became president of the regional bank in 2008. His district includes Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

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