Bullard is indicating rates should be left low until the Fed’s balance sheet is reduced.
This would mean longer rates would likely go higher before the Fed allows short rates to rise.
(It also shows he’s very confused on monetary operations but that’s a different issue.)
By Alister Bull
St. Louis Federal Reserve Bank President James Bullard said the central bank would need to think about scaling back its economic support in the months ahead, while Richmond Fed chief Jeffrey Lacker said it should weigh whether to carry through with all of its current stimulus plans.
“As we head to 2010, the Fed will shift its focus to implementing an exit strategy in order to avoid any potential inflation threats to the economy,” Bullard said in prepared remarks.
“Monetary policy is still very accommodative and the (Fed) intends to keep the fed funds target near zero for an extended period,” he said, according to a summary of his presentation on the economic outlook at the College of Business at the University of Arkansas-Little Rock.
Bullard emphasized that the exit ought to mean allowing the Fed balance sheet to shrink, perhaps by selling assets that it purchased this year to counter the worst recession since the Great Depression, rather than speedy rate hikes.