LONDON (MNI) – St. Louis Fed Chief James Bullard made clear today
that the Federal Reserve would take a fine-tuning approach to QE2,
adjusting it up or down by small amounts contingent on data flow and its
own policy aims.

Speaking to CNBC TV, Bullard said:

“Getting to the next meeting — looking at how the data is coming
in, looking at how the forecast has changed and make a judgment on
going forward. That is how I would like to approach this quantitative
easing programe … we can make changes if in the committee’s judgment
that is warranted. That is how I would like to proceed going forward”.

Bullard noted that the FOMC’s last policy statement contained a
regular review clause for that reason:

“For me, it is very much reviewable and changeable”.

“People talk about QE3 and QE4 — what they have in mind when they
say that is that we’re going to announce some other big number at some
point down the road”.

Bullard went on:

“I don’t see it like that, I see it as a continuous process where
you adjust say the date or the pace of purchases you could make minor
adjustments as the data comes in … then you get away from this idea
that you are adopting policies on a one-off manner. Instead you are
operating policy according to a rule or a quasi-rule which is informed
by the judgement of the committee, where you are adjusting a little bit
up, a little bit down, depending on how the economy is performing and
especially progress towards our mandated goals”

Responding to a question on the tax compromise, Bullard
said:

“Quite a bit of that was anticipated in the markets,” Bullard.

The Fed official said that, as a general rule, monetary policy was
bound to be a more effective stimulus tool than fiscal policy, which
was inevitably complicated by expectations –

“If you want a general piece of intuition, I would say monetary
policy is pretty effective, fiscal policy is more of a question mark,
because with fiscal policy you always have the issue of deficits out
there in the future and the future taxes that are sitting out there.
People see those future taxes and you don’t know how they are going to
react to those future taxes and so that is always an issue with fiscal
policy – how effective is it really to have deficit-financed fiscal
action”.

–London Bureau; Tel: +442078627492; email: dthomas@marketnews.com

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