St. Louis Fed Pres Bullard


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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.)

Fed officials say must not ignore exit policy

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.


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Reuters: Bernanke: full effect of rate cuts yet to be felt

by Alister Bull

(Reuters) The full benefit of recent Federal Reserve interest rate cuts has not yet been felt, Fed Chairman Ben Bernanke said Thursday, nodding to a policy lag that may reduce the need for many more rate moves ahead.

Ben Bernanke

CNBC.com

Ben Bernanke


“Further actions will have to depend on how the economy evolves and we are looking of course at both sides of our mandate, growth and inflation,” Bernanke told a U.S. Senate Banking Committee hearing on the rescue of troubled investment bank Bear Stearns.

“The effects of monetary policy are felt over a period of time and we expect to see further positive effects of these policies going forward,” he said.

“I believe we have helped to offset the credit crunch to some extent.” Bernanke acknowledged in testimony Wednesday that there was a risk U.S. growth could contract slightly in the first half of this year, before picking up in the next six months.

On the other hand, recent economic indicators have been mixed, with some signaling that conditions were not getting worse at an accelerating pace and may even be stabilizing.

First time he’s used this kind of language.

Bernanke also stressed Thursday that the Fed was uncomfortable with the current high levels of inflation, while arguing that these pressures should abate in the months ahead.

“The primary reason for the high inflation is rapid increases in the price of globally traded commodities, including crude oil and food,” he said.

Headline U.S. consumer prices rose 4.0 percent in February versus a year ago.

“It is our expectation, which is consistent with the prices seen in futures markets, that these prices will moderate in the coming year and that therefore, overall inflation will tend to slow,” Bernanke said.

“However, we are aware of the uncertainties involved with that and we are obviously going to be watching the situation very carefully,” he added.