Bloomberg News

Bullard Says Inflation’s Failure to Slow Makes Him Nervous

October 20, 2011

(Adds comments on inflation, policy starting in second paragraph.)

Oct. 20 (Bloomberg) -- Federal Reserve Bank of St. Louis President James Bullard said inflation persisting at high levels amid a weak labor market gives him pause about his forecast for an eventual slowing in price measures.

“We are definitely not at target” for total inflation, Bullard told reporters today during an economic conference at the bank. “I am a bit concerned about price pressures in the U.S. It is making me nervous that we haven’t seen that turn around so far.”

Bullard urged policy makers to wait until 2012 before considering additional stimulus because recent reports have indicated growth picked up in the third quarter, reducing the risk of recession, and consumer price inflation has been above the Fed’s implicit target of about 2 percent. Prices including food and fuel increased 3.9 percent in the 12 months ended September, the biggest year-over-year increase since September 2008, the Labor Department said yesterday.

The Federal Open Market Committee has used unconventional policy instruments at its last two meetings to try to bring down an unemployment rate stuck near 9 percent or higher for 30 consecutive months. In August the central bank pledged to hold interest rates near zero until mid-2013, and in September the Fed announced it would swap $400 billion of short-term debt for longer-term securities in a bid to lower borrowing costs.

‘Wait and See’

“It is reasonable to wait and see how the Twist policy affects the economy,” Bullard said, referring to September’s so-called Operation Twist measure. “Given that the tone of the data has been better, you want to get into next year” before you consider more action.

Bullard said he would oppose a communications policy that ties an eventual interest-rate increase in part to the level of joblessness because monetary policy doesn’t directly affect employment. Europe has suffered high unemployment caused by elements other than weak demand for years, he said.

Chicago Fed President Charles Evans is calling for the Fed to keep the target for the benchmark U.S. interest rate near zero until either unemployment falls below 7 percent or the medium-term inflation outlook rises above 3 percent.

Instead, Bullard said quantitative easing, or purchases of securities, would be “our most potent action, and I would not rule out QE if there were further deterioration in the U.S.,” he said. “I think QE is still on the table.”

Bullard, 50, who doesn’t vote on monetary policy this year, joined the St. Louis Fed’s research department in 1990 and became president of the regional bank in 2008.

--Editors: Scott Lanman, Christopher Wellisz

To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

To contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.net


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