The Federal Reserve could maintain its $85 billion in monthly bond purchases, now at a “torrid” pace, even as the job market improves, said James Bullard, president of the Federal Reserve Bank of St. Louis.
“You should think about QE more as a normal policy when the policy rate is at zero,” Bullard said, speaking on CNBC today about bond purchases known as quantitative easing. The Fed could try to boost inflation to its 2% goal by maintaining the policy, he said.
The central bank is currently purchasing assets at “a torrid pace, and I’d rather get out of it if we can, but I’d like to meet our goals,” he said.
Price gains have been lagging behind Fed policy makers’ target, and the Fed’s preferred gauge of inflation, the personal consumption expenditures index, rose 1.2% in August. In their October statement, members of the policy making Federal Open Market Committee said inflation “persistently below its 2% objective could pose risks to economic performance,” projecting that inflation will move back toward the objective over the medium term.
The FOMC in October decided to press on with bond purchases, awaiting further signs the economy will grow quickly enough to bring down 7.2% unemployment. Economists had originally expected a taper in Septemeber. Now, the median projection in a Bloomberg survey projects that scaling back will begin in March.
Bullard, who voted for the October decision, called bond buying “conventional” policy when the Fed is constrained by near-zero interest rates, and said “it’s a very reasonable thing to do to substitute for the fact that you can’t lower interest rates any further.”
Bullard also said the pace of monetary easing is “too experimental” for policy makers to make its direction totally obvious to onlookers.
“Ideally, we’d like to have a policy rule for quantitative easing, where you could show how we react to variables in the economy,” Bullard said. “The truth is, we’ve never been able to get to that. It’s too experimental of a policy, we just don’t have enough experience with it to get to that point. But that would be the sort of Holy Grail on this.”
Bullard, 52, has been an advocate of an open-ended approach to bond buying, and has urged the Fed to hold off on adjusting bond purchases, saying any change should depend on whether inflation moves toward the Fed’s target.
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.