Bullard: U.S. May Benefit Unwittingly in E.U. Crisis

Bullard: U.S. May Benefit Unwittingly in E.U. Crisis

St. Louis Federal Reserve Bank president James Bullard downplayed the global economic risks generated by the European sovereign debt crisis and said the U.S. economy may well prove to be an “unwitting beneficiary.”

But Bullard, a voting member of the Fed’s policymaking Federal Open Market Committee, warned that the world may be in for a “new, more volatile macroeconomic era.”

Bullard, in remarks prepared for delivery to the European Economics and Financial Centre in London, said the current sovereign debt mess in Europe is unlikely to reignite the financial crisis from which the world is still recovering. But he said government responses to the crisis, which moved away from previous “rules-based” policies, make for greater uncertainty and hence heightened volatility in the future.

What’s more, he said the financial regulatory reform process now nearing completion in the United States leaves some issues unaddressed — a further cause of future volatility.

“In the U.S., the recession likely ended in the summer of 2009, although the actual end may not be announced by the [National Bureau of Economic Research] dating committee for some time,” he said. “Growth in real GDP is expected to continue through the current quarter, making for a full year of growth in national income.”

“If current consensus private sector forecasts are realized, inflation-adjusted national income will surpass its 2008 peak later this year,” said Bullard, adding that “global growth has returned as well.”

“The U.S. may actually be an unwitting beneficiary of the crisis in Europe, much as it was during the Asian currency crisis of the late 1990s,” he said. “This is because of the flight-to-safety effect that pushes yields lower in the U.S.”

— Market News International

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