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| April 2013
Fed’s Bullard Says Low Inflation Could Require More Stimulus
By Joshua Zumbrun and Steve Matthews
Bloomberg Businessweek, April 17, 2013. All Rights Reserved.
James Bullard, president of the Federal Reserve Bank of St. Louis, said U.S. inflation has fallen too far below the central bank’s 2 percent goal and a further drop could prompt increased bond buying.
“Inflation should be closer to target than it is and we should defend the inflation target from the low side,” Bullard told reporters today after a speech in New York. “If it doesn’t start to turn around here soon, I think we’ll have to rethink where we are in our policy.”
One option would be for the Federal Open Market Committee to increase monthly purchases from $85 billion, the level reaffirmed in March, Bullard said. The policy group said asset purchases will continue until the labor market outlook improves “substantially” and pledged to keep interest rates near zero as long as unemployment is above 6.5 percent and inflation doesn’t exceed 2.5 percent.
“I think we could do more if we had to,” Bullard said. “I don’t want to give you the impression that I’m willing to do more today.”
Consumer prices rose 1.3 percent in February from a year earlier, according to the Fed’s preferred gauge of inflation. Bullard said the current disinflation is “not quite as bad as it was in the fall of 2010.”
Second Round
James Bullard, president of the Federal Reserve Bank of St. Louis, said U.S. inflation has fallen too far below the central bank’s 2 percent goal and a further drop could prompt increased bond buying.
“Inflation should be closer to target than it is and we should defend the inflation target from the low side,” Bullard told reporters today after a speech in New York. “If it doesn’t start to turn around here soon, I think we’ll have to rethink where we are in our policy.”
One option would be for the Federal Open Market Committee to increase monthly purchases from $85 billion, the level reaffirmed in March, Bullard said. The policy group said asset purchases will continue until the labor market outlook improves “substantially” and pledged to keep interest rates near zero as long as unemployment is above 6.5 percent and inflation doesn’t exceed 2.5 percent.
“I think we could do more if we had to,” Bullard said. “I don’t want to give you the impression that I’m willing to do more today.”
Consumer prices rose 1.3 percent in February from a year earlier, according to the Fed’s preferred gauge of inflation. Bullard said the current disinflation is “not quite as bad as it was in the fall of 2010.”
Second Round
That year, Bullard initiated calls for a second round of bond buying, which ran from November 2010 until June 2011.
Any new purchases should be in Treasury securities rather than mortgage bonds because the market is larger, he said. Bullard said he “would like to see the Fed eventually return to an all-Treasuries portfolio.”
By contrast, minutes of the March 19-20 FOMC meeting showed that a number of Fed officials said the central bank should begin slowing its bond buying program later this year and stop it by year end.
A recent plunge in gold prices doesn’t have implications for forecast inflation though does point to weakness in the global economy, the St. Louis Fed president said.
“Europe is in recession, and China is not growing quite as fast as before so those two factors would seem to suggest global commodity demand would be down some,” Bullard told reporters.
Monetary Policy
By contrast, minutes of the March 19-20 FOMC meeting showed that a number of Fed officials said the central bank should begin slowing its bond buying program later this year and stop it by year end.
A recent plunge in gold prices doesn’t have implications for forecast inflation though does point to weakness in the global economy, the St. Louis Fed president said.
“Europe is in recession, and China is not growing quite as fast as before so those two factors would seem to suggest global commodity demand would be down some,” Bullard told reporters.
Monetary Policy
In his prepared remarks, Bullard said monetary policy should be guided by the central bank’s price-stability goal and it would be a mistake to place a greater focus on high unemployment.
The unemployment rate has been dropping 0.7 percentage point a year since its peak after the recession, and will be in the “low 7 percent range by the end of 2013,” he said at the Hyman Minsky Conference, hosted by the Levy Economics Institute.
In response to audience questions, Bullard cited the example of Germany’s labor-market reforms as a model for U.S. policy makers.
“Germany has been very impressive on the labor market dimension” in recent years, he said. “You could copy their policies” to encourage jobs, while monetary policy itself is a “very blunt instrument” that can’t be targeted.
Among Fed policy makers, Fed Minneapolis Bank President Narayana Kocherlakota has urged more stimulus for economic growth by reducing the threshold for consideration of a policy tightening to a 5.5 percent unemployment rate.
Fed Vice Chairman Janet Yellen yesterday said she favors holding the benchmark interest rate “lower for longer,” while New York Fed President William C. Dudley said a slowdown in the pace of employment growth in March highlights the need to maintain the pace of bond purchases.
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.
The unemployment rate has been dropping 0.7 percentage point a year since its peak after the recession, and will be in the “low 7 percent range by the end of 2013,” he said at the Hyman Minsky Conference, hosted by the Levy Economics Institute.
In response to audience questions, Bullard cited the example of Germany’s labor-market reforms as a model for U.S. policy makers.
“Germany has been very impressive on the labor market dimension” in recent years, he said. “You could copy their policies” to encourage jobs, while monetary policy itself is a “very blunt instrument” that can’t be targeted.
Among Fed policy makers, Fed Minneapolis Bank President Narayana Kocherlakota has urged more stimulus for economic growth by reducing the threshold for consideration of a policy tightening to a 5.5 percent unemployment rate.
Fed Vice Chairman Janet Yellen yesterday said she favors holding the benchmark interest rate “lower for longer,” while New York Fed President William C. Dudley said a slowdown in the pace of employment growth in March highlights the need to maintain the pace of bond purchases.
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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