Fed’s Bullard sees no need for new stimulus as economy improves

Federal Reserve Bank of St. Louis President James Bullard said he sees no need for additional easing as the performance of the U.S. expansion exceeds expectations.

“An appropriate approach at this juncture may be to continue to pause to assess developments in the economy,” Bullard said today in a speech in St. Louis. “Past behavior of the committee suggests a ‘wait-and-see’ strategy at this juncture,” he said.

Bullard’s comments echoed Fed policy makers’ decision to hold off on increasing monetary accommodation unless the economic expansion falters or prices rise at a rate slower than its 2 percent target, according to minutes of their March 13 meeting released this week. The central bank also affirmed its projection, first announced in January, that subdued inflation and economic slack will probably warrant exceptionally low rates through late 2014.

Many of the policy actions the Fed might consider would have an impact lasting several years, Bullard said in remarks prepared for 13th Annual InvestMidwest Venture Capital Forum.

“The ultra-easy policy has been appropriate until now, but it will not always be appropriate,” he said. “As the U.S. economy continues to rebound and repair, additional policy actions may create an over-commitment to ultra-easy monetary policy.”

Boosted Output

Bullard reiterated his view that the amount of slack in the economy may be less than most economists estimate because the 2002-2006 housing bubble artificially boosted output. He also said he was opposed to the 2014 conditional pledge, which may lead consumers and businesses to believe the Fed has an unduly negative outlook.

“Neither the Fed nor any other forecaster has a clear idea of what macroeconomic conditions will be like at that time,” he said. “This is an unwarranted pessimistic signal for the FOMC to send.”

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.