HONG KONG (MNI) – St. Louis Federal Reserve Bank President James
Bullard said Tuesday he expects monetary aggregates to return to more
healthy growth as the economic recovery takes hold, but warned of a
medium-term inflation risk.

He told the Institute of Regulation and Risk for North Asia that
large fiscal deficits coupled with low interest rates and a “very
large” balance sheet could be problematic in the medium term.

“We don’t have an inflation risk right now in the U.S. but in the
medium term there’s a fairly substantial inflation risk in the U.S.
because of large fiscal deficits, coupled with low interest rates and a
very large balance sheet.”

He said Fed officials need to “play their cards right” to ensure
that inflation is not allowed to become a danger.

Bullard said central banks will have to work to regain credibility
in the coming years after the emergency measures that have recently been
implemented.

“I expect more volatility in the next five years than you would
otherwise expect as it is going to be difficult to get this credibility
in policy in the very near term as we’ve had to take all these
unprecedented actions.”

Bullard said, without naming names, that sovereign debt could be
restructured without causing too much economic disruption.

“It has happened a lot in the past. It hasn’t been a trigger for
global recession in the past. You could say that this time is different
but I don’t think so.”

Asked about efforts in Europe, he said the ECB is in the position
where it could launch a quantitative easing program but that he has seen
no indication that they want to go “in that direction.”

He noted that there is a market misconception about the quality of
debt purchased by the Federal Reserve as part of its quantitative
easing, noting that “sub-prime was dead by the time we started buying.”

“We don’t have as much risk as is perceived out there in the world
on our balance sheet and we’ve done an analysis about coming up short on
revenue in the coming years but I don’t think that’s likely.”

Bullard said he rules out the likelihood of a global double-dip
recession.

[TOPICS: M$$CR$,M$U$$$,MMUFE$,MT$$$$,M$J$$$,M$A$$$]