Federal Reserve Bank of St. Louis President James Bullard said monetary policy may be at a turning point and the Fed should be cautious about stepping up accommodation as the U.S. economy rebounds.
With policy currently “on pause, it may be a good time to take stock of whether we may be at a turning point,” Bullard said in a speech in Hong Kong today. “As the U.S. economy continues to rebound and repair,” further action “may create an overcommitment to ultra-easy monetary policy.”
Chairman Ben S. Bernanke said yesterday that public expectations that inflation will remain low gives the Fed leeway to maintain record monetary easing. He and other policy makers said last week in a statement that economic slack and subdued inflation will probably warrant keeping the main interest rate at close to zero at least through late 2014.
“With numerous monetary policy actions still on the table, and others still affecting the economy with a lag, it may be especially difficult to remove policy accommodation at the appropriate pace and at the appropriate time,” Bullard said at an investment conference sponsored by Credit Suisse Group AG. “One may want to approach such a situation with caution.”
Fed officials have differed on whether more easing may be needed. New York Fed President William C. Dudley said March 19 that while economic reports have improved, it’s “far too soon to conclude that we are out of the woods” and “nothing has been decided” on more bond purchases. Dallas Fed President Richard Fisher, in a Fox Business interview yesterday, said he opposed more purchases with the economy strengthening.
The U.S. economy may expand 3 percent this year, Bullard said, and “the outlook has improved markedly” over the past eight months.
Inflation remains higher than the Fed’s target of 2 percent, which may indicate the U.S. economy has less slack than most economists estimate, he said.
Bullard said while the Fed’s release of individual policy makers’ forecasts of the target interest rate was a “definite improvement” in communications, the release will need to be altered in the future. One option would be the release of a formal monetary policy report prepared by Fed staff, which would include a longer discussion of the outlook and “the likely direction going forward.”
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.