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.