April 18, 2011 / 4:01 PM / in 8 years

Fed's Bullard says inflation on the rise

LOUISVILLE, Kentucky (Reuters) - The Federal Reserve should not exclude food and energy from the inflation numbers it targets, and those figures have been rising recently, St. Louis Federal Reserve Bank President James Bullard said on Monday.

While he did not explicitly repeat calls for potentially trimming the Fed’s $600 billion, bond-buying stimulus program, Bullard did indicate he is beginning to worry about recent inflation readings, bolstered by rising energy costs.

U.S. consumer prices rose 2.7 percent in the year to March, but the core measures, which excludes food and energy prices, climbed just 1.2 percent. But Bullard argued policymakers should target the overall number.

“The ‘core’ concept has little theoretical backing,” Bullard said in a presentation distributed to reporters. “Inflation and inflation expectations have recently moved higher.”

Bullard argued the underlying fundamentals for U.S. economic growth are strong despite signs that first quarter economic growth, now seen possibly coming in below 2 percent, looked much weaker than had been expected a few months ago.

U.S. gross domestic product rose 3.1 percent in the fourth quarter. Unemployment, meanwhile, remains at an elevated 8.8 percent, though it has come down rapidly in recent months.

Bullard said the major risks to the economic outlook, including political uprisings in the Middle East and North Africa, and Europe’s sovereign debt crisis. would likely dissipate as the year progresses.

Indeed, he expects U.S. job growth, which has been anemic in this recovery, to accelerate over coming months.

Bullard said adopting an explicit inflation target would be a much better way to keep the central bank disciplined than some return to commodity-linked currencies.

“Tying the currency to commodities when commodity prices are highly variable is questionable,” he said.

Editing by Neil Stempleman

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