July 3, 2008 / 2:32 PM / 9 years ago

CORRECTED - Fed's Bullard says bank's credibility on line

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(Corrects Bullard's first name to James instead of Alan in second paragraph)

CHICAGO, July 3 (Reuters) - The Federal Reserve's use of core inflation measures is harming its credibility, the new president of the St. Louis Fed wrote in an editorial released on Thursday.

James Bullard, who took over from William Poole in April, said focusing on inflation indices that exclude food and energy work well when those prices are rising at rates similar to those of other prices, "but that is not what is happening today.

"It is hurting Fed credibility to say that we are trying to keep inflation low and stable, but at the same time we are not counting some of the prices that are going up at the most rapid pace," Bullard wrote in the bank's magazine, "The Regional Economist."

Bullard's public appearances have shown a similar hawkish bias to his predecessor. In June he said the Fed needed to start raising interest rates this year to tamp down inflation.

"Price stability should be the number one goal of policy-makers today," he wrote, defining price stability as "a small, positive rate of inflation, say 0.5 to 1.5 percent a year, depending on the price index being used." (Reporting by Ros Krasny; Editing by Tom Hals)

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