INDIANAPOLIS (Reuters) - Persistently weak inflation in the United States is the “wildcard” for the Federal Reserve this year, a top Fed official said on Friday even as he forecast a rise in consumer prices.
St. Louis Fed President James Bullard, according to notes of a speech he was to give, expects both core and headline inflation to rise to 1.6 percent by the end of 2014, up from around 1 percent now.
“Because inflation surprised to the downside in 2013, it remains a wildcard for the Committee in 2014,” he said of the Fed’s policy-setting Federal Open Market Committee.
While the Fed started this month to reduce its bond-buying stimulus for the economy, citing a stronger labor market, surprisingly weak inflation has prompted it to tread cautiously.
Bullard, who backed last month’s decision to cut the quantitative easing program (QE), also predicted the unemployment rate would drop to about 6.2 percent by year end, and a pick up in gross domestic product growth to 3.2 percent.
U.S. joblessness fell to 6.7 percent, from 7 percent, in December according to fresh data published earlier on Friday. But job growth was far less than expected, which could leave the Fed second-guessing just how strong is the labor market recovery.
Reporting by Jonathan Spicer; Editing by Chizu Nomiyama