MEMPHIS Oct 4 The United States faces a problem
of too much debt, but any suggestion that this burden can be
eased by allowing inflation to rise will just result in higher
borrowing costs in the future, a senior Federal Reserve official
said on Thursday.
James Bullard, president of the Federal Reserve Bank of St.
Louis, said that inflation was sometimes seen as a way to
"partially default" on existing debts, because it lowers the
amount the borrower repays in real, inflation-adjusted terms.
"A partial default today through higher inflation would be
paid for via higher inflation premiums in future borrowing.
Creditors would want to protect themselves against an
unpredictable central bank," he told the Economic Club of
Memphis in prepared remarks. "Alas, in economics there is no
Bullard is not a voting member of the Fed's policy-setting
committee this year, but will hold a rotating vote in 2013.
He has publicly stated that he would not have voted for the
Fed's third round of so-called quantitative easing announced at
its policy meeting last month, at which it also committed to
holding interest rates near zero until at least mid-2015.
"Is this happening? Distant inflation expectations from the
TIPS (Treasury inflation protected securities) market seem to
suggest that investors do not completely trust the Fed to
deliver on its 2 percent inflation target," he said.