LONDON - The U.S. economy is being held back by uncertainty over both domestic, notably fiscal issues, and events in the euro area, James Bullard, President and CEO of the Federal Reserve Bank of St. Louis, says.
Bullard says the effects of the extension of Operation Twist, the move to extend the average maturity of the Fed's own portfolio, are uncertain and will take time to materialize. With uncertainty abounding, Bullard questioned whether the US economy would meet current forecasts through the remainder of this year.
Bullard noted estimates that the Twist extension was equivalent to a 25-50 basis point cut but said "Given the lags in the effects of monetary policy, it will now take some time to see the impact of this action and to see whether or not the economy can meet the current set of expectations on performance during the remainder of 2012."
Delivering the OMFIF Golden Series Lecture here Bullard highlighted the challenges facing the U.S. economy.
It is "being held back by significant uncertainties both within the U.S. and globally. Uncertainty is inhibiting both household and investor behavior," he said.
"The U.S. fiscal situation is similar to that of some countries in Europe and requires dramatic and sustained attention. The political compromise in the U.S. has been to delay action until after the November election, but markets tend to pull the uncertainty forward," Bullard added.
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