Federal Reserve Bank of St. Louis President James Bullard said Friday that the Fed “inappropriately timed” a plan to trim $85 billion in monthly bond purchases amid slowing inflation.
“A more prudent approach would be to wait for tangible signs that the economy wasstrengthening and that inflation was on a path to return toward target before making such an announcement,” Bullard said in a news release.
Bullard this weekdissented from a statementby Fed policymakers not to change their current pace of monthly asset purchases. He repeated Friday that officials should do more to signal they are willing to defend their 2 percent inflation goal in light of low readings for consumer-price growth.
“Bullard apparently saw deeper and more persistent risks to medium-term prices than did other members ofthe committee,” said Nathan Sheets, global head of international economics at Citigroup Inc. and former head of the Fed’s international finance division. “The chairman emphasized transitory factors, but it is possible that the ongoing disinflation is driven by some more sustained softness in the U.S. and global economy.”
Inflation, as measured by the personal consumption expenditures price index, rose 0.7 percent for the year ending in April, below the central bank’s 2 percent goal.
Bullard has been a leading voice for open-ended bond buying known as quantitative easing, with no end date set in advance and the size of purchases to change based on new economic data.
Chairman Ben Bernanke put investors on notice after this week’s policy meeting that the Fed is prepared to begin phasing out its latest asset-purchase program this year.
The central bank will probably taper its bond buying in 2013 and halt purchases around mid-2014 so long as the economy performs in line with its projections, Bernanke said Wednesday.
Bullard said it was a mistake to make such an announcement the same day theFed marked down forecasts for economic growth and inflation for this year. Fed officials projected this week the economy will grow 2.3 percent to 2.6 percent in 2013 compared with their March estimates for growth of 2.3 percent to 2.8 percent.
He also said the Federal Open Market Committee statement was a “step away” from “state-contingent monetary policy.”
“Policy actions should be undertaken to meet policy objectives, not calendar objectives,” Bullard said, according to the statement.
The Fed will trim its purchases to $65 billion in September and end buying in June 2014, according to the plurality of estimates by economists in a recent Bloomberg survey.
Bullard joined the St. Louis Fed’s research department in 1990 and became president of the regional bank in 2008.
His district includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.
Business, Pages 27 on 06/22/2013