News Column

St. Louis Fed Chief: Tapering Talk Is Too Hasty

June 21, 2013

A half-sentence in a Federal Reserve policy statement was not enough for James Bullard. The St. Louis Federal Reserve Bank president issued a news release Friday explaining the reasons for his dissenting vote at the Federal Open Market Committee on Wednesday.

Bullard cast a "no" vote because he thought the committee was paying too little heed to recent inflation readings, which have been far below the Fed's 2 percent target. The FOMC statement described the inflation numbers as "partly reflecting transitory influences," and after the committee meeting, Fed Chairman Ben Bernanke held a news conference at which he described how the Fed might reduce its bond-purchase program, which is known as quantitative easing.

Bullard says it's too early to talk about cutting back the bond purchases. Today's statement says he "also felt that the Committee's decision to authorize the chairman to lay out a more elaborate plan for reducing the pace of asset purchases was inappropriately timed. The committee was, through the Summary of Economic Projections process, marking down its assessment of both real GDP growth and inflation for 2013, and yet simultaneously announcing that less accommodative policy may be in store. President Bullard felt that a more prudent approach would be to wait for more tangible signs that the economy was strengthening and that inflation was on a path to return toward target before making such an announcement."

Bullard also says the discussion about an end to quantitative easing is a "step away from state-contingent monetary policy." That's his argument that policy should change based on economic outcomes, not dates on the calendar. The Fed essentially adopted his view last year when it launched the current round of quantitative easing, known as QE3, but now Bullard feels the central bank is moving back toward calendar-based policy.

In an interview Friday with Bloomberg, Bullard said the inflation readings may point toward an expansion, not a tapering, of Fed bond purchases. He told reporter Steve Matthews that the FOMC "will face a decision if inflation continues to decline. Then the committee will have to make a decision about how to provide more accommodation."


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Source: Copyright St. Louis Post-Dispatch (MO) 2013

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