TOKYO (MNI) – Deflationary pressure on the U.S. economy has
increased, so the nation’s central bank is “keeping an eye” on it, the
Nikkei reported on Friday, quoting Federal Reserve Bank of St. Louis
President James Bullard.

“Inflation expectations are still holding up pretty well, but
they’ve deteriorated quite a bit during the spring here,” Bullard said
in a recent interview with the Nikkei. “It’s a little bit of a concern,
so we’re keeping an eye on that.”

Bullard is currently a voting member of the Fed’s policy-setting
Federal Open Market Committee.

Deflation in the U.S. “is a bigger risk than it was earlier this
year,” he said.

Bullard’s remark came days after Fed Chairman Ben Bernanke called
the U.S. economic outlook “unusually uncertain.”

Asked how he sees that description, Bullard said: “I don’t think
it’s unusually uncertain. … There’s uncertainty, but it’s not
particularly higher or lower than … what it usually is.”

Even though U.S. economic data has come in somewhat weaker of late,
he said: “I don’t think it’s weak enough to really change the forecast
for the second half of the year,” which he said most forecasters still
peg at around 3% real growth.

However, Bullard said the recovery in U.S. employment is slower
than the Fed had expected earlier this year.

It is still too early to measure the effects of the major stimulus
package adopted by the U.S. last year, Bullard added.

“There’s still some several hundred billion that has not been
spent,” he noted, later adding that “we’ve still got some distance to go
… to see the full effects of the stimulus program that was put in
place in early 2009.”

Bullard dismissed concerns about the European crisis causing a
global recession.

“I do think that the European sovereign debt crisis is a serious
matter and could potentially turn into a much bigger shock for the
global economy,” he said.

“But I think the Europeans are doing a reasonably good job of
containing the crisis. They’ve got several measures in place that look
like they’re … containing the crisis. These stress tests are one piece
of that policy.

“So I do think that (the European problem) won’t affect the U.S. or
Asia as much as some people have feared,” he said.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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