Fed’s Bullard opposes tapering of QE amid slowing inflation

Improving Markets

Positive indicators include improving real-estate markets, rallying equity markets, a “subdued” European sovereign debt crisis, less U.S. “fiscal brinksmanship” and households improving their financial balance sheets, Bullard said in remarks prepared for the speech.

“However, given recent forecasting performance, we should be careful in using an optimistic forecast to justify current policy decisions,” he said. “A more prudent approach would be to wait to see if better macroeconomic outcomes materialize in the months and quarters ahead.”

In his interview, Bullard said during the June FOMC meeting “there was a little bit of slippage back to date-based guidance,” referring to setting a tentative end date for the bond buying.

Data Dependent

“To have it creep back in was something I found a little disturbing,” though Bernanke “did mitigate that” to “some extent” by highlighting that the schedule was contingent on economic reports, he said.

Bernanke said this week he favored maintaining stimulus “for the foreseeable future,” even as the FOMC has been split on how quickly it should reduce bond buying, or quantitative easing. He referred to “my good friend Jim Bullard” as he agreed the central bank should defend the inflation target when price gains slow too quickly.

U.S. stocks were little changed, with the Standard & Poor’s 500 Index falling less than 0.1% to 1,674.55 at 3:02 p.m., after a report today showed consumer confidence fell. The Thomson Reuters/University of Michigan preliminary sentiment index for July fell to 83.9 from 84.1 a month earlier. The U.S. 10-year Treasury yield rose to 2.6% from 2.57% yesterday.

“There’s a little bit of a mixed bag” on a broad set of labor market indicators, but the main employment indicators including payroll growth have improved since September 2012, Bullard said. The U.S. central bank began its third round of large-scale asset purchases in September.

Housing Strength

“The general sentiment in housing markets has turned positive,” Bullard said in the interview, prior to a planned speech to the Rocky Mountain Economic Summit. “That’s a psychological shift,” he said. “We’ll see an improving housing market going forward.”

Bullard said that the U.S. “could do better” if it had smaller and more innovative U.S. banks that regulators can allow to fail without disrupting the financial system.

“We could win the global competition if we had smaller institutions,” he said.

The St. Louis Fed president has been an outspoken supporter of open-ended quantitative easing, with no limit on the size or duration of the buying. Fed officials should vary the amount of bond purchases in response to fresh economic data, Bullard has said.

Since 2010, Bullard has expressed concern that slowing inflation could lead to deflation, or a sustained decline in prices, and Japanese-style economic stagnation. He has also said the FOMC needs to safeguard the credibility of its inflation target, defending the goal when price gains are either too high or too low.

Bullard, 52, 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.

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