Bloomberg News

Bullard Says Fed Should Forgo Additional Easing While U.S. Economy Expands

March 03, 2012

The Federal Reserve should hold off on additional accommodation because the U.S. economy is growing moderately and risks from the European debt crisis have eased, said St. Louis Fed President James Bullard.

“I wouldn’t take anything off the table,” Bullard said yesterday in an interview with BNN Television in Vancouver. “For now things are looking better for the U.S. economy and it is a good time to wait and see.”

Bullard said in a speech that he expects the U.S. unemployment rate to drop to 7.8 percent by year’s end, as a “moderate expansion” spurs improvement in the labor market. His comments echoed Chairman Ben S. Bernanke, who said in congressional testimony last week that maintaining monetary stimulus is warranted even as the unemployment rate falls and rising oil prices may push up inflation temporarily.

The central bank could damage its credibility by signaling policy that will stay unusually easy for a specified time frame, Bullard said at Simon Fraser University in Vancouver.

“If the economy is performing well at the point in the future where the promise begins to bite, then the committee may simply abandon the promise and return to normal policy,” he said. The result would be “unhelpful” and result in “credibility problems.”

The Fed’s asset purchase program, or quantitative easing, may worsen the risk that prices will rise, Bullard said. “Increases in the size of the balance sheet entail additional inflationary risks if accommodation is not removed at an appropriate pace,” he said.

Global Increase

“I’d be concerned that we not undertake a policy move like QE that would possibly feed into a global increase in oil prices,” Bullard said to reporters after his speech.

In the television interview, Bullard said he is “a bit concerned with rising energy prices.” While $4-per-gallon of gasoline doesn’t seem to be hurting consumer spending, an increase to $5-per-gallon would be “enough to get the attention of households,” he said.

U.S. stocks fell prior to Bullard’s speech, with the Standard & Poor’s 500 index declining 0.3 percent to 1,369.63. Ten-year Treasury yields lost five basis points to 1.98 percent.

Bullard said in the interview that the Fed could boost its target rate “sooner if the economy behaves better than expected. We have to be ready to make an adjustment,” which could also mean postponing an interest rate increase.

Bullard, who doesn’t vote on monetary policy this year, was the first Fed official in 2010 to call for a second round of asset purchases by the central bank. The Fed pushed down its target interest rate close to zero in December 2008 and has engaged in two rounds of asset purchases totaling $2.3 trillion to boost the economy.

“We are seeing some tentative signs of improvement” in U.S. residential real estate, Bullard said. “I expect only slow improvement in 2012 in the housing market. I don’t think it is realistic to expect rapid improvement.”

To contact the reporters on this story: Steve Matthews in Atlanta at; Christopher Donville in Vancouver at

To contact the editor responsible for this story: Chris Wellisz at

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