Fed’s Bullard says balance-sheet growth lifts exit concern

Treasury Remittances

“We are remitting a lot to the Treasury today, on order of $80 billion or $90 billion. But those remittances will drop a lot” and may near zero, he said, citing a recent Fed paper. “Things are going to change dramatically, going forward.”

Bullard told reporters that monetary policy was appropriate in his view now. “We have room to maneuver” with inflation low.

In his prepared remarks, Bullard said changes in asset purchases should be made in response to changes in the labor market, including the unemployment rate, employment, hours worked, and Job Openings and Labor Turnover Survey data.

In one sign of an improving labor market, jobless claims decreased by 27,000, the most in a month, to 341,000 in the week ended Feb. 9, Labor Department figures showed today. Employers added 157,000 workers to payrolls in January after hiring a revised 196,000 the month before, and the unemployment rate climbed to 7.9%, Labor Department figures showed Feb. 1.

Current measures of inflation are “rather low,” which Bullard said may give the FOMC some leeway to continue asset purchases for longer than otherwise.

Fed Stimulus

Bullard said the potency of Fed stimulus today may be misunderstood, because in December it replaced the end of its Operation Twist program, in which it swapped short-term Treasuries for longer-term bonds, with outright bond purchases.

“Open-ended outright purchases are a more potent tool,” he said. “2013 is characterized by a relatively potent open- ended outright asset purchase program combined with more effective threshold-based forward guidance.”

The Fed last month left unchanged its December link of its interest-rate outlook to economic thresholds, saying borrowing costs will stay low “at least as long” as joblessness exceeds 6.5% and if projected inflation won’t go beyond 2.5% between one and two years in the future.

The FOMC 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, 51, who calls himself the “North Pole of inflation hawks,” has been viewed as a bellwether for investors because his views have sometimes foreshadowed policy changes. He was the first Fed official in 2010 to call for a second round of asset purchases.

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.

Bloomberg News

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