By Yali N’Diaye

WASHINGTON (MNI) – St. Louis Federal Reserve President James
Bullard said Wednesday that while the debts of U.S. states are
significant, they do not represent as much of a burden compared to the
magnitude of European sovereign debt.

In fact, he said in remarks at the Tennessee Department of
Financial Institutions, “One risk to the outlook is the sovereign debt
crisis in Greece,” which by spreading has intensified market volatility.

Overall, however, Bullard underlined the continued signs of
recovery in the U.S. economy, including in the housing and labor
markets.

Against this backdrop, Bullard, a voting member of the Federal Open
Market Committee, repeated that the current monetary policy remains
“extremely accommodative” despite low inflation.

Bullard also repeated the need to leave the Federal Reserve
involved in the oversight of community banks, which the Senate agreed to
do in an amendment passed earlier Wednesday.

“The Fed should remain involved with community bank regulation so
that it has a view of the entire financial landscape,” Bullard argued.
“It is important that the Fed does not become biased toward the very
large, mostly New York-based institutions.”

He also stressed the central bank is already “extensively audited.”
That said, “Additional audits are welcome, so long as they do not
constitute political meddling.”

Overall, the central banker reiterated his view about the U.S.
economy, underlining the signs of recovery.

He noted improvements in real consumption of nondurables and
services, as well as real investment, amid a rebound in manufacturing
activity.

In the housing market, home prices “are increasing,” he also
highlighted, although they “remain low.”

Even the labor market is improving and likely to continue to do so
going forward.

“We have had five positive employment reports in the past six
months, which is evidence that labor market conditions are slowly
improving,” Bullard said, adding he expects this trend to continue going
forward through the spring and summer.

Despite his upbeat assessment of the economy, Bullard stressed the
unemployment rate remains high.

What’s more, the Greece sovereign debt crisis remains a risk to the
outlook.

The escalation of the crisis “is causing a flight to safety,” he
said, and “depressing U.S. Treasury yields.”

However, the aid package agreed between the European Commission,
the European Central Bank and the International Monetary Fund has helped
reverse some of the flight-to-quality.

The U.S. is not immune to debt issues, as Bullard highlighted state
debt burdens in his presentation.

That said, the debt burdens of U.S. states are an order of
magnitude lower than typical European sovereign debt burdens, he said.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$CR$]