Bullard, speaking in London today, said he is “a little bit nervous about the fact that inflation has been low and has been trending down. I would like to get some reassurance from the data that it’s going to turn around and go back toward target before we start tapering” purchases.
Williams said the recent slowdown in the cost of living will probably be “temporary” and prices will soon rise at a rate closer to the central bank’s 2 percent goal. Inflation was at 1 percent in March, marking the slowest pace since 2009, according to the personal consumption expenditures price index.
“If inflation kept staying low even though these temporary factors played out” or if price expectations started “drifting downward,” that would “definitely go into my thinking about how much accommodation to have,” Williams said.
Williams said that U.S. central bankers may still have “an extra tool” to provide stimulus even after they bring their bond-buying to a close.
“Do we want to normalize the size of the balance sheet over just a few years or could we stretch that out?” he said. “Holding onto the assets for longer would provide further support. Selling them faster would provide less to the economy.”
While the FOMC has pledged to keep its benchmark interest rate near zero as long as unemployment is above 6.5 percent, it may not begin tightening until “well after” the economy reaches that threshold, he said.
“It’s not at all a given that we’d raise rates once we hit” that mark, he said.
The San Francisco Fed chief was an early proponent of releasing policy makers’ projections for the benchmark interest rate, which the Fed started publishing in January 2012. He became president of the San Francisco Fed in March 2011 after two years as the bank’s director of research.