Tags: Bullard | Yellen | FederalReserve | tapering

Fed's Bullard Says Inflation Slowing More Might Cause QE Taper Delay

Wednesday, 02 April 2014 01:25 PM

Federal Reserve Bank of St. Louis President James Bullard said a further slowing of inflation could prompt policy makers to suspend tapering of bond purchases, though he doesn’t expect that to happen.

“I still think it is important to defend the inflation target from the low side,” Bullard, who doesn’t vote on policy this year, said in a Bloomberg Radio interview with Kathleen Hays and Vonnie Quinn in St. Louis. “If inflation takes another step down, that will put heavy pressure” on policy makers “to take further action.”

The Fed’s preferred gauge for inflation slowed to a 0.9 percent 12-month pace in February from 1.2 percent in January, and it has been below the Fed’s 2 percent target for almost two years.

Bullard said inflation “has stabilized at a low level” and is “about to head higher.” A pickup in the U.S. economy, a recovery in Europe that should help global growth, and stable inflation expectations in the U.S. all suggest inflation will move back up toward the Fed’s target, Bullard said.

Still, “if inflation fell meaningfully below 1 percent and looked like it would stay there, I think the committee would have to take action,” Bullard said, pointing to a parallel with the European Central Bank. “That is a similar situation to what has happened at the ECB, and what we have seen in Europe is that has put heavy pressure on the committee.”

U.S. policy makers “have a clear card we can play,” Bullard said. “We can delay the tapering program” which would put off an interest-rate increase as well. “That would change the entire timing of the exit program.”

Fed Chair Janet Yellen said on March 31 the economy will need stimulus for “some time,” easing concern among investors that the central bank would move quickly to raise interest rates after ending bond purchases.

Yields on Treasury securities rose after Fed officials, in forecasts for a March 18-19 meeting of the Federal Open Market Committee, prompted expectations that interest rates over the next two years may rise faster than previously anticipated.

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Federal Reserve Bank of St. Louis President James Bullard said a further slowing of inflation could prompt policy makers to suspend tapering of bond purchases, though he doesn't expect that to happen.
Bullard,Yellen,FederalReserve,tapering
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2014-25-02
Wednesday, 02 April 2014 01:25 PM
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