–‘Recently We Haven’t Been Talking Exit’

By Ian McKendry

CHICAGO (MNI) – Recent economic data has shown the U.S. economy is
improving, but the Federal Reserve is still not talking exit strategy
while at the same time not planning to deploy more quantitative easing,
St. Louis Federal Reserve Pres. James Bullard said Saturday.

Answering questions at the Allied Social Science associations
annual meeting, Bullard said the Fed is rather taking a “wait and see”
approach. Earlier he previewed a paper examining how the recovery
landscape and recovery tools have changed that he will release next
week.

“The committee has actually talked a lot about possible exit
strategies and how we would approach that, and we have put out a lot of
statements about that,” Bullard said, and he added “Recently we haven’t
been talking exit.”

Taking questions from reporters following a presentation previewing
his paper titled “Death of a Theory” — to be released next Saturday at
an event sponsored by the Korea-America Economic Association — Bullard
said “the QE programs in particular have been effective” but “how much
is too much?”

“I don’t think it is very likely right now [the Fed will deploy
more QE] because the tone of the data has been pretty strong in 2012
right up to now,” Bullard said.

Bullard said the slow growth in the first half of 2011 was mostly
due to transitory factors and that “this is a logical point in the
recovery where you would expect more rapid growth and somewhat better
jobs market.”

Bullard pointed to Friday’s stronger employment report which showed
the unemployment rate fell to 8.5% while 200,000 new non-farm payrolls
jobs were added — 212,000 private sector jobs. And he cited the weekly
initial jobless claims report which shows the level is staying below
the critical 400,000 point.

While the U.S. economy has shown improvement, many have been
fearful that the sovereign debt crisis in Europe could have spillover
effects for the U.S.. However, Bullard said he thought outside of a
financial meltdown, the U.S. is fairly well insulated from Europe and
the U.S. is “perfectly capable” of growing even if there is a slowdown
in Europe.

Bullard, who recently said the Fed is very close to declaring an
inflation target, said “you would create more certainty about the
long-term goals of the committee.”

“If you don’t name an inflation target, what you are doing is
keeping the possibility of very high inflation in your pocket which
might take out at the appropriate time … . This is why you are taking
that off the table.”

“It would be useful because if you have a lot of confidence in the
Fed, then possibly you could if you wanted to take more action, you
would have more leeway to take action because the private sector would
understand you are not going to take more action in the longer run.”

Bullard also said he is in support of the Fed releasing officials’
federal funds rate forecast (which will debut after the January 24-25
Federal Open Market Committee meeting) but is unsure if releasing
17 different projections is the best way to go.

“I think we will have ample opportunity to experiment with
different ways to present these forecasts going forward,” Bullard said,
adding, “I think there are legitimate questions about whether this is
the best way to communicate an expected funds rate path for the
committee.”

“I would prefer to work towards something like an inflation report
for the U.S. where you have a quarterly statement that’s a full
statement about ‘here is where we think the economy is, here is our take
on the issues facing the economy and here is the projected path of
policy.'”

“That is the way the U.K. does it and I think they got it about
right,” he said.

Bullard also said “there has been dissatisfaction expressed about
2013 language” in the FOMC statement which says economic conditions “are
likely to warrant exceptionally low levels for the federal funds rate at
least through mid-2013.”

“I don’t think we should put calendar dates in,” Bullard said.
It could be this projected path of policy is the way to go.”

Bullard’s paper to be released next week will focus on how monetary
policy is more effective at stabilizing the economy from shocks than
fiscal policy. His paper will argue that unconventional monetary policy
has been effective even in a zero lower bound rate environment.

“I conclude that the turn toward fiscal approaches to stabilization
policy has run its course, and that conventional wisdom is being
re-established,” Bullard’s presentation said. “Stabilization policy
should be left to the monetary authority, which can operate effectively
even at the zero lower bound.”

“Tax and spending policy,” he said, “should be set for the medium
and longer term.”

** Market News International – Chicago **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$BR$,M$$AG$]