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Wed August 14, 2013
St. Louis Federal Reserve President 'Fed Policy Has Been in Flux'
The St. Louis Federal Reserve President says the Fed continues to fine tune financial policies in the continued sluggish economy.
In comments today to the Paducah Rotary Club, President James Bullard said the Fed's lending rate will remain near zero until one of two thresholds are met - the unemployment rate drops below 6.5 percent, or inflation reaches 2.5 percent.
Bullard said this is a change in forward guidance policy that previously set the rate according to a predetermined time frame.
“Fed policy has been in flux, I guess you'd have to say, over the last five years,” Bullard said. “It's been a very challenging time for US policy-makers and for the US economy as a whole. But, I fully admit this has been, there has been a lot of experimentation in policy and on the forward guidance-side in particular."
Bullard said factors determining whether or not the fed will taper asset purchases depend on how labor markets are faring. The program, known as quantitative easing, began in September 2012 in an effort to spur the economy by buying mortgage-backed securities and US treasury securities.
"There is risk of inflation out there in the future if we don't manage our affairs carefully going forward," said Bullard. "On the other hand, the recovery has not been as strong as we like so we're trying to balance out. Provide the right amount of accommodation to the economy."
While slightly lower unemployment and higher job growth signal a stronger market, Bullard says GDP growth is low and the Fed balance sheet has quadrupled in size while the inflation rate is off target.