Federal Reserve Bank of St. Louis President James Bullard said the central bank probably will press on with its asset purchases as contained inflation expectations give it time to continue the quantitative easing.
“I think it’s going to be a while on the QE program,” Bullard, a voting member of the policy-making Federal Open Market Committee this year, said in a television interview today on “Bloomberg Surveillance” with Tom Keene and Mike McKee. “We’ve got a lot of room to maneuver here.”
Opponents of the unprecedented asset purchase program that aims to boost growth and hiring have said it could spur inflation. Bullard said that a greater concern now, with price increases below the Fed’s target, is that “we need to defend our inflation target from the low side.”
The Fed said last month that inflation has been “somewhat below” its long-run target of 2%. An index of inflation tied to spending patterns rose 1.2% in the 12 months through January.
Stocks rose after the Labor Department reported payrolls increased by a greater-than-forecast 236,000 in February and the unemployment rate unexpectedly fell to a five-year low of 7.7%. The Standard & Poor’s 500 Index rose 0.4% to 1,550.51 at 9:31 a.m. in New York. Treasuries declined, pushing up the yield on the benchmark 10-year note to 2.06% from 2% late yesterday.
Bullard, who was interviewed before the jobs report, said monthly payroll growth of around 200,000 is “a good number for the U.S. economy.” He projected on Feb. 21 that unemployment may drop to 6.5% by the middle of next year.
The FOMC is debating how long to continue $85 billion in monthly purchases of Treasuries and mortgage bonds. The committee, which meets March 19-20 in Washington, has said it will keep the main interest rate near zero as long as the jobless rate remains above 6.5% and inflation isn’t projected to exceed 2.5%.
Policy makers haven’t set a definitive end date for the buying, saying that it will continue until the labor market improves “substantially.”
Bullard also said today that the most recent drop in new claims for unemployment benefits is an “encouraging” sign for the economic recovery. Initial jobless claims fell 7,000 to 340,000 in the week ended March 2, pushing the monthly average to a five-year low, Labor Department data show.
“Claims doesn’t get much lower than this, even in real good times,” Bullard said.