By Ian McKendry

WASHINGTON (MNI) – St. Louis Federal Reserve President James
Bullard Tuesday said recent weakness in U.S. economic data and in
particular the U.S. employment report has not changed the economic
outlook and that easy monetary policy may not be able to reach debt
constrained households.

“The recent nonfarm payrolls report was disappointing, but not
enough to substantially alter the contours of the U.S. outlook,” Bullard
told the Bipartisan Policy Center’s Housing Commission and the Jack Kemp
Foundation in St. Louis.

Bullard also said that seasonal adjustment factors could be leading
people to think that the U.S. employment situation is worse than it
actually is.

He pointed to the non-seasonally adjusted data which showed that
789,000 jobs were added in May and that 1.8 million were added on a
year-over-year basis.

“The outlook for 2012 has not changed significantly so far,”
Bullard said, adding that many analysts are expecting a stronger second
half in 2012.

Rather, Bullard suggested the perceived “global slowdown” and the
decline in both real and nominal U.S. interest rates has been driven by
turmoil in Europe.

“A change in U.S. monetary policy at this juncture will not alter
the situation in Europe,” Bullard stated.

He said U.S. monetary policy has is already “ultra-easy” and that
the FOMC could “pocket the lower yields and continue to wait-and-see on
the U.S. economic outlook.”

Bullard continued, by saying that easy monetary policy cannot
encourage households saddled with significant amounts to borrow.

“This is the first U.S. recession in which deleveraging has played
a key role,” Bullard said adding that, “It is neither feasible nor
desirable to attempt to re-inflate the housing bubble.”

“Policy should be directed to encouraging market-based adjustment
as quickly as possible,” he continued.

He also said that while principal reductions for mortgages has been
broached, “allocating losses to one group or another is not helpful in a
macroeconomic sense.”

“We should expect and plan for slow adjustment in housing markets,”
Bullard concluded.

** MNI Washington Bureau: 202-371-2121 **