Bullard: Low Inflation, Other Factors Mean Fed Can Keep Buying

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Inflation remains below target, economic growth has been slow but steady, and labor markets are improving, and there's been "limited financial market excess," so the Fed can stick to its asset purchase plans, Federal Reserve Bank of St. Louis President James Bullard said Monday.

 "This configuration of data suggests that the Federal Open Market Committee (FOMC) can continue to pursue its aggressive asset purchase program," Bullard said at a panel discussion in Montreal, according to a release issued by the Fed.

Labor markets are better than in September, when the FOMC initiated its QE3 program, "inflation has been surprisingly low," Bullard said. Commodity prices have been soft over the past year. "Low inflation may give the FOMC more leeway to continue its aggressive asset purchase program," Bullard said.

He added the Fed remains vigilant about the potential for financial market excess. "An important concern for the FOMC is that low interest rates can be associated with excessive risk-taking in financial markets," Bullard said. "So far, it appears that this type of activity has been limited since the end of the recession in 2009."  While the Dodd-Frank Act is meant to help contain some dimensions of this activity, "Still, this issue bears careful watching:  Both the 1990s and the 2000s were characterized by very large asset bubbles," he added.

Bullard said the Fed's asset purchases of $85 billion per month through its QE3 program is now widely regarded as the key aspect of meeting-to-meeting policy choices. "Labor market conditions have improved since last summer, suggesting the Committee could slow the pace of purchases, but surprisingly low inflation readings may mean the Committee can maintain its aggressive program over a longer time frame," Bullard concluded.

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