February 8, 2010 / 4:41 PM / 9 years ago

HIGHLIGHTS-Interview with St. Louis Fed chief Bullard

WASHINGTON, Feb 8 (Reuters) - The following are highlights from a Reuters interview with St. Louis Federal Reserve Bank President James Bullard on Monday.

ON ECONOMIC OUTLOOK

“I think we’ll get growth in the first half here, not as strong as the fourth quarter, but we’ll get reasonable growth, above trend growth, so above three percent in the first half of 2010.”

“We may have seen the peak (in unemployment) ... I have my concern about the (jobless) claims numbers.”

ON MANAGING THE FED’S BALANCE SHEET

“I think we will basically manage the balance sheet back to something more normal, where normal means roughly the size that it was before the crisis got going and probably also means that it would be mostly Treasuries or all Treasuries at some point. So, you would like to manage your way back to that situation, but you have got to pay attention to what’s going on in the economy and the strength of the recovery and react to the data as it comes in...”

“You’d kind of want the situation to be back to normal in some kind of time frame before the next storm comes for the economy so that at that point you’d have a fresh set of tools and you can react at that point...”

“Selling (assets) has more sympathy than you might think. It’s more a question of timing and speed... Maybe you get in the second half of 2010 or something like that, if things are going pretty well, maybe then you’d sell a little bit at that point and you’d try to see how the market reacts and then you go from there. Some scenario that looks like that would be a more sensible way to think about how the committee might approach this. Let me stress, no decisions have been made but there has been a lot more discussion about it.”

BULLARD ON EUROPE SOVEREIGN DEBT PROBLEMS

“We have to keep an eye on it. One of the things that has happened in this crisis is that we’ve downplayed developments in one sector of the global economy and found out later that it really can come back to hurt us.

“One of the things about this is that its hard to know who is holding what. It’s hard to map out where the ramifications would really be. I do think Europe will find a solution for this, but we’ll have to see.”

ON EXPANDING/ENDING MBS PROGRAM

“I don’t think that’s very likely. We’re going to let those run-off. I don’t think we’re going to be buying anymore at the end of this. And we’re tapering off as we go through the first quarter and it doesn’t seem to be having too much impact. I think the program will end seamlessly, hopefully, and we’ll have a reasonable market there for new issues...”

“I think that the effects will be modest. We purchased a lot and all we are going to do is allow a little bit of runoff by not replacing them.”

ON HEALTH OF HOUSING SECTOR

“I do think that it has stabilized at a low level. Prices have come way down, and are kind of bouncing around at this very low level and I think that’s kind of what you’ll see, you might see slight improvement...”

“I don’t think we will see any further deterioration in 2010, but you probably won’t see a lot of rapid improvement either. You’ll just hang around at these low levels.”

ON INTEREST ON RESERVES

“Interest on reserves is a good tool and we’ll use it at the appropriate time. And to be clear, when you raise the interest on reserves you’re raising interest rates. I wouldn’t want to rely on interest on reserves over a pretty long period of time. But eventually the only way that you can really operate is to get the balance sheet down to a size that you can work with and a size that’s more normal for a central bank.”

ON WHETHER ASSET SALES SHOULD PRECEDE RATE HIKES

“It depends of the pace of a recovery. I’d like that as a sequence, but I’m not sure that’s the way everybody is thinking about it.”

WOULD HIGHER INFLATION EXPECTATIONS TRUMP JOBLESSNESS?

“I think it would. It would trump everything. You’ve got kind of a risky situation. You’re taking a very unusual policy, a very aggressive policy. We know that expectations are very important to how these things evolve, so if those start to get out of hand then we really have to come back in and send signals to the market that, no, we’re not going to allow inflation to get out of control.”

ON CURRENT INFLATION EXPECTATIONS

“Now all the inflation expectations are either at the Fed’s implicit target or above the Fed’s implicit target. What you’ll see in 2010, if the data keep coming in as expected and the economy keeps improving, then those will continue to ratchet up unless the central bank sends some signals that, no, we intend to keep inflation close to target. But I think we’ve avoided that deflationary scenario that I was worried about.”

ON HOUSING AND REGULATORY REFORM

“Fixing the U.S. housing market should be one of the main focuses of regulatory reform legislation and instead we are kicking the can. That is the wrong approach to regulatory reform. It should be a key pillar of regulatory reform is how are you going to fix the situation in the mortgage markets and that is an issue that the nation has not faced up to.” (Reporting by Reuters’ Fed reporting team; Editing by Andrew Hay)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below