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Bullard: More stimulus isnt warranted

In a time of improving economic activity, the Federal Reserve should refrain from doing much more on the stimulus front, a key Federal Reserve official said, according to Dow Jones Newswires.

Anything the Fed might do beyond its current efforts "would have effects far into the future, in an environment of continual improvement and repair for the U.S. economy," Federal Reserve Bank of St. Louis President James Bullard said.

He said, "The ultra-easy policy has served us well in a difficult environment, but overcommitting to the ultra-easy policy could well have detrimental consequences for the U.S. and, by extension, the global economy." Bullard also said if the Fed were to add more stimulus in a significant fashion, "it may be especially difficult to remove policy accommodation at the appropriate pace and at the appropriate time. One may want to approach such a situation with caution."

Bullards comments came from the text of a speech to be delivered at a conference in Hong Kong on Friday morning, local time. The central banker doesnt currently hold a voting role on the interest-rate-setting Federal Open Market Committee. In recent remarks, the Bullard has advocated against what had been strong expectations weak growth would drive the Fed toward some sort of new balance sheet expansion this year, most likely via bond buying.

Odds of this stimulus have diminished of late as economic data, especially on the labor front, have looked better. Bullard, in his speech, was decidedly upbeat about the economic environment. "The U.S. economy may achieve 3% growth in real GDP in 2012," he said, explaining, "This is not a high growth rate by historical standards in the U.S., but the outlook has improved markedly compared to last summer."

Bullard tied some of the improved performance to the reduction of financial market disruptions from Europes government debt crisis. "Two important contributors to reduced stress have been the introduction by the European Central Bank of the Long-Term Refinancing Operation, and the relatively successful navigation of Greek debt restructuring."

The central banker also said that the pace of job gains suggest that economists old understanding of labor market dynamics may not be right. The performance of late suggests "the nation does not need rapid growth to see a reduction in unemployment--it only needs to see some positive growth."

Bullard warned that he was worried about the inflation outlook. "Some say that if inflation increases, then we know how to combat it," Bullard said. "That is true, but the hard-learned lesson of the 1970s was that if the inflation genie is let out of the bottle, it can be extremely difficult to get it back into the bottle."

Bullard also said that new forecasts released by the Fed on officials monetary policy outlook suggests the future is more cloudy than many realize, and that the official view rates will stay near zero until late 2014 may not hold.

"The uncertainty surrounding the future policy path is profound," Bullard said. "The amount of uncertainty attached to a projection of U.S. economic performance into 2014 reinforces the idea that much will change between now and then, and that policy will have to change as well to meet new macroeconomic conditions."
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