From the transcript of St Louis Fed president James Bullard’s interview with Bloomberg Television:
I also think that inflation expectations are dropping in the U.S. And that is something that a central bank cannot abide. We have to make sure that inflation and inflation expectations remain near our target. And for that reason I think a reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data dependent. And we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December. So… continue with QE at a very low level as we have it right now. And then assess our options going forward. …
Two Federal Reserve officials sought to play down market expectations that the central bank will move quickly to provide further monetary easing, says the WSJ. James Bullard, president of the Federal Reserve Bank of St. Louis, said Thursday that recent data on the economy had been surprisingly strong and “it’s reasonable to think” there would be a pause until at least 2012. Richard Fisher, president of the Federal Reserve Bank of Dallas, dismissed talk of the Fed cutting the rate charged on emergency loans from its discount window.
Asian stocks swung between gains and losses, US futures rose and the dollar retreated from a one-week high against the euro, Bloomberg says, ahead of a speech by Federal Reserve Chairman Ben S. Bernanke later on Friday, and US economic data. Earlier, stocks on Wall Street had fallen on Thursday as investors lowered their expectations around measures Mr Bernanke might signal in the speech. The president of the St Louis Fed told the FT on Thursday that further quantitative easing would be the US Federal Reserve’s most effective tool if it needs to do more to stimulate the US economy, but an “Operation Twist” to extend the maturity of its balance sheet might not have much effect. “I think QE is our most potent weapon,” said James Bullard. “It carries risks, as we’ve experienced over the last year, but if you wanted to take that further and take further risks on inflation, then you could do that.” Meanwhile Thomas Hoenig, president of the Kansas City Federal Reserve Bank, told Reuters he did not see a double-dip recession, and downplayed the significance of recent negative reports on manufacturing.
For the commute home, where your liquidity should never be abruptly halted,
– Why the growth rate matters. Read more
Comments on Thursday’s FT Alphaville post on James Bullard pointed out that while he was happy to show the correlation between QE2, inflation expectations and real interest rates, there was little on what it may have done to oil prices.
Fortunately, the ever-alert Reuters columnist John Kemp has provided the ‘missing slide’ which adds Brent spot prices to the St Louis Fed president’s data: Read more
James Bullard delivered an interesting, chart-rich speech on inflation, QE2 and global output gaps on Thursday. (And yes, ‘interesting’ is all subjective.)
The now non-voting St Louis Fed President was a strong advocate of QE2 as a way to reverse alleged deflationary pressures. FT Alphaville noted in December that Bullard was keen to suggest that QE2 was just hunky-dory, impacting on key indicators as predicted. Read more
The summer of 2009 was characterised by one almighty debate between those expecting Japan-style deflation, those who forecast inflation — and those who thought monetary conditions would be ‘just right.’ Fast forward a year and we’re having the same argument, though the emphasis has shifted dramatically. The deflationistas appear to have suddenly grabbed the upper hand. What changed, asks FT Alphaville? Read more
James Bullard has brought a a subtle shift in Fed monetary policy out into the open at last, reports the NYT. The President of the St. Louis Fed warned on Thursday that the US faces Japan-style deflation, strengthening support within the Fed for further large-scale asset purchases, and placing him within the ranks of inflation doves on the central bank’s board. It’s good that some in the Fed are taking deflation more seriously, says Paul Krugman — but not everyone. Dallas Fed President Richard Fisher has compared the impact of QE on the current stage of the recovery to ‘pushing on a string’, Reuters reports.
Europe’s new age of fiscal austerity threatens the United States’ economic recovery, according to the NYT. While few economists predict a return to recession, a slower period of growth is increasingly likely. St Louis Fed chief James Bullard sought to play down the risks emanating from Europe in a speech in London on Tuesday, the FT says.