Fed's Bullard says economy slow, to recover in 2011

NEW YORK Fri Aug 27, 2010 9:49am EDT

NEW YORK (Reuters) - The U.S. economy hit a soft patch in the second quarter but is not likely to fall back into recession and will pick up speed in the first half of 2011, St. Louis Federal Reserve President James Bullard said on Friday.

"I don't think there's any question the economy is softer than what we expected as recently as 90 days ago, and we're all concerned about that," Bullard told CNBC-TV in Jackson Hole, Wyoming, site of an annual central bankers' conference.

The Commerce Department on Friday said U.S. economic growth slowed more sharply than previously thought between April and June, growing at a 1.6 percent annualized rate, after growing at a 3.7 percent rate in the first three months.

But Bullard said a double-dip recession is "not very likely at this point" and predicted growth would pick up in 2011.

He did not think the Fed -- the U.S. central bank -- was out of options to boost growth and said Fed officials have signaled they are ready to take additional steps if the economy weakens further.

This month, the Fed said it would reinvest proceeds from nearly $1.3 trillion in maturing mortgage-backed bonds in its portfolio into long-dated U.S. Treasury debt.

The bonds were acquired during the 2008 financial crisis as a way to keep borrowing costs low, and the decision to reinvest the proceeds in the government bond market was seen as a way to provide more monetary stimulus to a slowing economy.

Bullard has said the economy could be at "some risk" of declining prices, though it is not yet in a dire situation.

Some economists have urged the Fed to step up efforts to combat a slowdown, including raising the target inflation rate and buying more assets, including U.S. Treasuries.

"It's time to admit that what we have now isn't a recovery, and do whatever we can to change that situation," Nobel Laureate Paul Krugman wrote in the New York Times on Friday.

Bullard, in Jackson Hole to attend an annual conference organized by the Kansas City Fed that draws prominent economists and central bank officials from around the world, said any further quantitative easing should be "disciplined."

Fed Chairman Ben Bernanke was expected to discuss U.S. growth during a speech on Friday, though analysts don't expect him to offer details about whether the central bank will take more aggressive steps to help the economy.

Bullard said Bernanke has the support of "a huge majority" on the Fed's policy-setting Federal Open Market Committee.

(Reporting by Steven C. Johnson; Editing by James Dalgleish)

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Comments (1)
OpenDemocracy wrote:
In 10 years time, when analysts look back at the Great Recession of 2008 – 2010, they will conclude that there never really was a recovery in 2010. The so-called “W” shaped recovery that we appear to be experiencing would probably be better described as a flat-bottomed “U” shaped recovery with the bottom of the “U” being a longer period of time than the normal economic downturns of the past 80 years.

It would also appear that the U.S. government is out of ammunition when it comes to further economic stimulus. Having already accumulated a $13.37 trillion debt and having annual debt interest payments of $400 billion (incidentally, their interest payments are larger than the GDP of the top 21 countries in the world), they simply do not have the financial means to add further stimulus should it become necessary (as it already appears to be). As well, the recent commentary from Moody’s suggests that the Aaa credit rating for U.S. debt could possibly be downgraded which would increase the stress on the American economy.

To read more about the debt situation in the United States, see:

http://viableopposition.blogspot.com/2010/08/united-states-waiting-on-debt-downgrade.html

Aug 27, 2010 9:46am EDT  --  Report as abuse
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