“Rates went up a lot over the summer” and “for many on the committee that was a surprise,” Bullard said. It wasn’t a “surprise for me because I’ve said the flow of QE matters a lot.”
So “when we threatened to pull that back, markets naturally” sent yields higher, he said. Bullard during the past two months has urged the Fed to hold off on adjusting so-called quantitative easing, saying any change should depend on whether inflation moves toward the Fed’s 2% target. Policy shouldn’t rely on central bank forecasts for the economy that have proven too optimistic in the past three years, he said.
“We got some weaker data, so that put the committee in a position where we could delay,” he said. With inflation low, Bullard said “we can afford to be patient.”
Bullard dissented from the FOMC’s June 19 policy statement, saying the panel should “signal more strongly its willingness to defend its inflation goal.” He dropped the dissent at the following meeting when the FOMC added language saying persistently low inflation posed risks to the economic outlook.
“I think we should defend our inflation target from the low side,” Bullard said.
Bernanke has orchestrated the most aggressive easing in the Fed’s 100-year history, pumping up the balance sheet to $3.72 trillion from $867 billion in August 2007 and holding the main interest rate close to zero since December 2008.
Bullard, 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 published a paper in 2010 entitled “Seven Faces of the Peril,” which called on the central bank to avert deflation by purchasing Treasury notes. That was followed by a second round of bond buying.
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.