Fed's Bullard says inflation, job goals 'within sight'

LITTLE ROCK Fri May 16, 2014 2:56pm EDT

James Bullard, President of the St. Louis Federal Reserve Bank, speaks during an interview with Reuters in Boston, Massachusetts August 2, 2013. REUTERS/Brian Snyder

James Bullard, President of the St. Louis Federal Reserve Bank, speaks during an interview with Reuters in Boston, Massachusetts August 2, 2013.

Credit: Reuters/Brian Snyder

LITTLE ROCK (Reuters) - The U.S. economy is within sight of the Federal Reserve's inflation and employment goals, and is expected to grow at a "robust" pace for the rest of the year, St. Louis Federal Reserve Bank President James Bullard said on Friday.

The Fed is "a lot closer to its goals than people appreciate," Bullard told a banking conference here, and is in fact nearer to its targets than at any time in the past five years, and closer than it has been for much of the time since 1960. Those goals are 2 percent inflation and full employment, which Bullard said was around 5.4 percent based on current analysis.

Poor growth during a harsh winter will give way to stronger growth for the rest of the year, he said. He did not indicate whether the rosy forecast, backed up by data this week showing strong housing starts and an uptick in consumer prices, might move up the Fed's plans for raising benchmark interest rates from near zero.

But he repeated his own expectation that rates will likely need to rise by the end of the first quarter of next year, as inflation recovers to its desired target. That is several months ahead of the summer rate rise many investors now expect.

Bullard does not currently vote on the Fed's rate-setting committee. But his comments follow the relatively bullish tone of the Fed's last policy statement.

The St. Louis Fed chief has been among the more optimistic Fed members about the direction of the economy. He expanded those credentials on Friday in remarks that focused on the "tame" reaction around the world to the Fed's steady reduction in asset purchases.

The smooth progress of the taper, he said, is in contrast to the "tantrum" that roiled global equity markets in early 2013 - before the taper had begun. Bullard said he feels global investors changed perceptions since then, and now have faith that the U.S. economy is strong enough to withstand the end of Fed stimulus.

The asset buying program is on track to end in either October or December, depending on whether the Fed eliminates the final $15 billion in monthly purchases all at once, or trims $10 billion as has been the norm and leaves the remainder in place until December.

Bullard said $5 billion in purchases were "not material," so it probably made sense to end the program in October. The Fed currently is buying $45 billion in debt securities each month.

He also reiterated the Fed's conclusion that the flat first-quarter GDP reading was an anomaly that stemmed from the unusually snowy winter.

"Growth in coming quarters is still predicted to be robust," and for the full year could surpass the 2.6 percent level reached in 2013, he said.

Despite steady progress toward its goals, the Fed's current loose policy remains appropriate, Bullard said.

"Labor markets do not seem to be fully recovered."

Still, "Fed goals are within sight," he said.

(Reporting By Howard Schneider; Editing by Andrea Ricci)

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