Federal Reserve Bank of St. Louis President James Bullard said signs of more stability in U.S. fiscal policy, the housing market and the global economy will probably help fuel economic growth in 2013.
“This year seems to be characterized by less macroeconomic uncertainty compared to previous years,” Bullard said today in a speech in Jonesboro, Arkansas. “This bodes well for U.S. macroeconomic prospects in 2013.”
Bullard backed the Federal Open Market Committee decision last month to continue buying bonds at a rate of $85 billion a month after gross domestic product fell 0.1% in the fourth quarter. Policy makers have pushed the benchmark interest rate close to zero and expanded Fed assets to a record exceeding $3 trillion to fuel growth and reduce 7.9% unemployment.
U.S. economic weakness from last quarter persisted in January. Consumption slowed last month, with retail sales rising 0.1% after a 0.5% increase in December, hurt by higher payroll taxes, Commerce Department figures showed today.
Fed policy makers expect growth of 2.3% to 3% this year, according to forecasts made in December. Bullard, among the most optimistic on the Fed, has predicted that growth may accelerate to about 3% or more.
“Housing markets appear to be more robust” compared with a year ago, when a continued decline in housing prices seemed possible, Bullard said at Arkansas State University’s agribusiness conference.
“The trend is definitely upward in those prices” and a decline “has been taken off the table,” Bullard said.
Responding to audience questions, the St. Louis Fed leader said low inflation has allowed the central bank to be more aggressive with stimulus. “Because inflation is running below our 2% target, the Fed has some room to maneuver.”
Still, Bullard said he is concerned low interest rates may cause distortions in asset prices. He said he is monitoring the market for farmland for signs of a price bubble, noting the challenge of determining whether fundamental factors like increased demand have recently pushed up land prices.
“Low rates are one aspect of higher farmland prices,” he said. “I have been concerned and continue to be concerned” about the potential for a bubble.
Bullard, 51, said he is worried by the long-term outlook for the federal budget, saying the U.S. is “flirting” with a debt level that may inhibit economic growth.
U.S. stocks rose, with the Standard & Poor’s 500 Index up less than 0.1% to 1,520.38 at 1:27 p.m. in New York. The 10-year Treasury note yield increased four basis points, or 0.04 percentage point, to 2.01%.
The U.S. elections last year cleared up some uncertainty, with fiscal concerns “partially resolved,” he said. Also, the European Central Bank’s commitment to stimulate regional growth has improved Europe’s outlook.
“While 2012 was marked by a clear downshift in Euro-area economic growth, 2013 will likely see either a stabilization or some recovery,” he said. “In this sense the uncertainty concerning the European outlook has been reduced.”
“Emerging-market economies slowed during 2012, in part due to the European recession, but these economies are now expected to fare better in 2013,” Bullard said. China’s economic growth recently has been “stronger,” he said.
The central bank in September started a third round of asset purchases and expanded it in December, saying the quantitative easing will continue until the labor market is improving “substantially.”
Bullard joined the St. Louis Fed’s research department in 1990 and became president of the regional bank in 2008. His district includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.