Federal Reserve Bank of St. Louis President James Bullard estimated U.S. economic growth will quicken from a range of 2.5 percent to 2.7 percent during the first quarter to 3 percent for the entire year.
The economy is “on track” and Fed “policy can stay on hold for now,” Bullard said today to reporters after a speech in Logan, Utah. The central bank will probably need to tighten policy during the “last part of 2013,” he said.
Central bankers are holding off on increasing monetary accommodation unless the economic expansion falters or prices rise at a rate slower than their 2 percent target, according to minutes of their March 13 meeting. Bullard is the last scheduled Fed official to speak before Chairman Ben S. Bernanke and other policy makers meet April 24-25.
The Fed’s expansion of its balance sheet to $2.87 trillion through purchases of securities known as quantitative easing risks eventually spurring inflation, Bullard said in response to audience questions at the Jon M. Huntsman School of Business at Utah State University.
“The Fed is taking a lot of risk with its very large balance sheet,” he said. “It could turn into a lot of inflation if we don’t play our cards right.”
“Inflation has remained fairly low,” while “a bit above our target right now” of 2 percent, he said. “I do worry about it.”
The recent rise in oil prices is part of a long-term trend rather than a temporary increase with limited impact on inflation, Bullard said.
“There is a global scramble for resources, and it is led by emerging market economies which are growing at a very fast pace,” he said. “They are competing globally and this is putting pressure on resources. So you could imagine that energy and other commodities prices will rise faster” than other prices “for a long period of time.”
U.S. Treasury 10-year note yields were little changed at 1.98 percent even as a report showed retail sales in the U.S. rose more than forecast. The Standard & Poor’s 500 index also changed little at 1,369.57.
Bullard, asked by the audience to respond to criticism of the Fed as too intrusive in financial markets, said, “I want market solutions to all of our problems.”
“You can’t outmarket me,” he said.
The U.S. economy expanded at a 3 percent annual rate in the fourth quarter, the fastest pace in more than a year, as households spent more freely, the government reported. Growth will probably slow to 2.2 percent in the first quarter, according to the median of 73 economists’ forecasts in a Bloomberg News survey from April 6 to April 11.
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.
Bullard, 51, 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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