May 16 (Bloomberg) -- Federal Reserve Bank of St. Louis President James Bullard said fiscal policies are needed to reduce the 8.1% U.S. unemployment rate and additional asset purchases by the Fed, or quantitative easing, would risk a surge in inflation.
“It may be better to focus on labor market policies to directly address unemployment instead of taking further risks with monetary policy,” Bullard said in Louisville, Ky. “If anything, the committee may be trying to do too much with monetary policy, risking monetary instability for the U.S. and the global economy.”
The policy-making Federal Open Market Committee on April 25 reiterated its expectation that subdued inflation and economic slack will probably warrant “exceptionally low levels for the federal funds rate at least through late 2014.” Bullard has said he is opposed to such a pledge because policy should be made in response to economic data and not rely on a public timetable.
“The U.S. macroeconomic data have been stronger than expected as of last autumn,” Bullard said to business people and community leaders in a presentation hosted by the St. Louis Fed. “The main risk is that the committee will, as it has in the past, overcommit to the ultra-easy policy. The policy has been appropriate so far, but could reignite a 1970s-type experience globally if pursued too aggressively.”
Fed ‘On Hold’
Bullard told reporters after his speech that there is a “good logic” to the central bank putting policy “on hold” for an indefinite period of time. “Until we get a clear difference in the economic outlook” with an acceleration or slowdown, there is no need to change course, Bullard said.
“As long as we continue to go along in the current mode, which is moderate growth, continuing improvement in labor markets, inflation above target but coming down toward target, in that kind of situation we can stay on pause,” he said.
Bullard told audience questioners after his talk that the European debt crisis was unlikely to have a major impact on U.S. growth. While the turmoil “will roll on for a very long period of time,” European officials have averted the likelihood of a financial panic that would be most damaging to the U.S., he said.
The St. Louis Fed official told the audience in response to a question that he was disappointed in Congress’s failure to resolve uncertainty over fiscal spending this year.
Bullard said he didn’t favor using government spending as a way to stimulate growth because consumers and businesses respond by adjusting their plans in expectation of higher taxes in future years.