Bullard: Unconventional Fed Policy May Cause Volatility

With the Fed funds rate target near zero and policymakers using "unconventional" tools, it has been difficult for emerging markets to read U.S. intentions, which could have repercussions for the global economy, according to St. Louis Federal Reserve Bank President James Bullard.

"The Fed has pursued several unconventional policies while the policy rate has been near zero, making it much more difficult during the current era to describe policy as a commitment to a monetary policy rule," Bullard wrote in a St. Louis Fed publication. "As a result, reading the signals coming out of the U.S. has become more difficult, possibly generating unnecessary volatility in global financial markets."

Bullard also commented on the smoothness of the Fed taper in contrast to last summer's "taper tantrum." He said, "The fact that the tapering has been relatively smooth so far is encouraging for the Fed as we continue the process of eventually returning to normal monetary policy."

Turning to GDP, Bullard said the first-quarter contraction was likely "attributed mostly to weather and inventory adjustment effects," and predicts "sustained growth in the remaining quarters of this year." He noted, "While the first quarter looks like it will be an anomaly, the FOMC is watching the data closely to see if that story holds."

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