By Alyce Andres-Frantz
SOUTH BEND, Ind. (MNI) – St. Louis Federal Reserve Bank Pres. James
Bullard Thursday night expressed his opposition to QE3 saying he would
have voted against it, instead preferring more evidence that the global
slowdown was affecting the domestic economy.
Bullard, a non-voting FOMC member this year, was the keynote
speaker at a lecture series at Notre Dame.
“I would have voted against QE3 based on the idea that we did not
have a solid case to make at this juncture,” Bullard told the press
after his speech.
Bullard argued “We already have low financial stress and low
interest rates,” Furthermore, equity levels remain high, “which exudes
“There seems to be a lot of factors that suggested we could wait,”
Acknowledging the recession in Europe, Bullard said, “I am
concerned about a global slowdown but I would have liked to see more
evidence that was happening here before we went ahead.”
Earlier Bullard told the audience, the “Committee did make a big
move at the last meeting” speaking of its vote for more quantitative
easing, the purchase $40 billion agency MBS per month for an open ended
period of time.
The Fed will continue Operation Twist until year-end and will
reinvest MBS paydowns. The Fed estimated it will buy $85 billion
long-term bonds per month, a bit more than the market expected, until it
downspeeds after Op Twist concludes. The Fed also extended its forward
guidance to “at least thru mid-2015″ from late 2014.
However, Bullard was not all negative on QE3. “I liked some things
about the way we did this because we are doing it on a meeting by
meeting basis. I think that is a better approach,” he said, than the
sequence of decisions prior to that.
Bullard told the media that while the rally and narrowing in MBS
markets was “interesting,” it often takes weeks or months for the
markets to react to QE. “This certainly happened during QE2,” he said.
Bullard told the audience that one objective of the Fed’s efforts
is to “get better performance in the housing market,” Bullard said
adding that it “seems as though housing has ceased its decline.”
Bullard did note that inflation expectations, his preferred 5Y BE
“moved up on announcement” but added “it bears watching.”
“We have room to move on inflation, PCE is pretty low and core is
below target, CPI is about at target. We have a little room now, but not
as much as in 2010,” Bullard told reporters.
“I am hoping for 2% growth this year and stronger than 3% in 2013,”
Bullard said, adding that “headwinds will gradually dissipate.”
Bullard acknowledged recent and profound changes in labor markets
and added that the persistent weakness is a direct result in the
collapse of the housing bubble.
The “jury is still out,” on whether there has been a structural
changes in the labor market noting the recent trend of workers leaving
the labor force. “This has been rather significant,” Bullard told the
audience, that people are leaving the labor force.
Bullard told the press his opposition to using unemployment as a
measure for monetary policy, noting that “it can be fickle.”
“I would not tie the committee directly to the unemployment rate. I
prefer the qualitative approach to this,” he said.
Bullard also told the media that it is realistic to assume
that ultimately Congress will agree on a deal to resolve the fiscal
** MNI Chicago Bureau: (708) 784-1849 **