Fed's Bullard: contagion from Europe to US unlikely

STOCKHOLM Thu May 27, 2010 4:22am EDT

STOCKHOLM May 27 (Reuters) - A top Federal Reserve official said on Thursday that he did not expect contagion from Europe's fiscal problems to the United States and that the world's biggest economy may actually benefit from a "flight to safety".

St. Louis Federal Reserve President James Bullard said European debt worries helped drive down longer-term U.S. yields.

"Right now, I think the U.S. is going to be a beneficiary of the crisis in Europe, barring any contagion, and I'm arguing that I don't see how the contagion could occur," Bullard told reporters in Stockholm, noting the debt guarantees European authorities had put in place.

Bullard also said U.S. policy makers were watching the situation carefully and he was open to the possibility that contagion could occur though an unexpected channel.

Bullard said that while he has advocated a higher discount rate to get policy spreads in the United States back to more normal levels, he did not see the discount rate rising in the current environment.

He added inflation in the United States did not appear to be a problem and that any inflation risk would be over the medium term.