By Ann Saphir
MADISON, Wis., Jan. 10 A top U.S. Federal
Reserve official on Thursday predicted U.S. economic growth of
3.2 percent for this year and for 2014, crediting in part the
central bank's recent policy easing for what he called a
St. Louis Fed President James Bullard, a voting member this
year on the Fed's monetary policy panel, said he also expects
unemployment to drop over the next two years, while inflation
should remain near the Fed's 2 percent target rate.
"You should be standing and cheering, because this is
fantastic news," Bullard told the Wisconsin Bankers Association,
to polite laughter.
Easier monetary policy in the last six months, and a
reduction in economic headwinds and uncertainty, will help boost
growth well above the 2.3 percent potential growth rate that is
now the norm for the United States since the damage of the
financial crisis. The U.S. economy, before the crisis, routinely
grew at 3 percent or more, he said.
The Fed has been buying $85 billion in mortgage-backed
securities and Treasuries each month under a quantitative easing
program that it can adjust at any time. The purchases are meant
to kick-start growth and ratchet down unemployment, which stood
at 7.8 percent last month. The bond-buying program, known as QE3
because it is the Fed's third round of quantitative easing, puts
the central bank on track to buy $1 billion at an annualized
"I'm in the business and even I think that's a big number,"
Bullard, a centrist who argues that current monetary policy
is more accommodative than most people appreciate, said that in
the months ahead the Fed will make judgments on asset purchases
based on economic data.
"Hopefully, we'll be able to draw the program to a close at
an appropriate time, given the behavior of the economy," he
said, adding the Fed could taper the program as needed. "If you
are as optimistic as I am, you might envision an early end to
the program," he said; those with a more pessimistic view might
see the buying continue into 2014.
The U.S. economy grew at a decent 2.7 percent annual rate in
the third quarter but is expected to have slowed in the final
months of the year. Fed officials see GDP growth of between 2.3
to 3.0 percent this year, and 3.0 to 3.5 percent in 2014.
Bullard said the Fed's decision last month to tie its
interest-rate policy to economic conditions rather than a future
date means the Fed is no longer sending an "unwarranted
But the Fed's new promise to keep interest rates near zero
until the unemployment rate falls to 6.5 percent, as long as
inflation does not threaten to rise above 2.5 percent, poses
several problems, he said, including the Fed's inability to
target medium or long-term unemployment.