Bullard bullish on US economic data
Updated: 2012-02-06 07:57
By Steve Matthews (China Daily)
ATLANTA, United States - Federal Reserve Bank of St Louis President James Bullard said reports on the United States economy such as the better-than-expected employment data indicate that more Fed purchases of bonds aren't necessary.
"The economic news and economic data, including Friday's data, has been surprising to the upside," Bullard said in a Bloomberg News interview. "I need to see significant deterioration in the economy and some threat of deflation or inflation moving significantly below our inflation target before I would consider more QE," he said, referring to bond purchases known as quantitative easing.
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. Unlike then, the US isn't at risk of facing a broad decline in prices similar to what beset Japan, he said.
"Inflation is coming down but at least for now it is above our inflation target" of 2 percent, Bullard said. "We will see how things develop. But I am also more bullish on the economy as a whole. I do think we have momentum coming out of 2011."
The US jobless rate unexpectedly fell in January to the lowest in three years as payrolls climbed more than forecast. The unemployment rate dropped to 8.3 percent, the lowest since February 2009, Labor Department figures showed on Friday.
The 243,000 increase in jobs was the biggest in nine months and exceeded the most optimistic forecast in a Bloomberg News survey. Service industries grew by the most in a year, according to a separate report.
Fed Chairman Ben S. Bernanke said in a news conference last month that the central bank is considering buying more bonds to stimulate growth. Chicago Fed President Charles Evans said that economists have suggested more Fed asset purchases of around $1 trillion, and he may favor a program "more ambitious than most numbers being bandied about".
Purchases of Treasury or mortgage-backed securities are "much more" effective in influencing inflation than in reducing unemployment, which can remain high for reasons such as a mismatch of worker skills with available jobs, Bullard said.
Today's decline in the jobless rate suggests Fed forecasts for unemployment at the end of the year are too high, Bullard said. The fall in unemployment will probably continue thanks to a decline in weekly jobless claims, he said.
"Surely you could get another half percent during the year and you might be able to do better than that," Bullard said. "Sub-8 percent is a reasonable prediction" for the unemployment rate at the end of 2012, with a 7 percent rate possible by the end of next year, he said.
Fed policy makers forecast that the US unemployment rate will be at 8.2 percent to 8.5 percent at the end of 2012, and 7.4 percent to 8.1 percent late next year.
"The continuing drop in the unemployment rate is inconsistent with the Fed's forecast," said Dean Maki, chief US economist at Barclays Capital Inc. The Federal Open Market Committee pledged to keep the benchmark interest rate at a record low at least until late 2014. Bullard said he would have dissented from the decision because he opposes tying policy to a calendar date.
The committee has "almost no ability to forecast that far in the future," he said. "My own guess is we will have to move before" late 2014 and begin removing accommodation, Bullard said.
(China Daily 02/06/2012 page14)