Federal Reserve Bank of St. Louis president James Bullard argued Monday that despite criticisms and concerns raised, the need for the Federal Reserve’s recently announced asset-buying program outweighs any potential risks, especially in light of the “clear disinflation trend” that has developed this year.

In remarks prepared for a presentation at the meeting of the New York Society of Security Analysts, Bullard gave his thoughts on the need for buying $600 billion worth of Treasuries by the second quarter of 2011.

Asset purchases can substitute for ordinary monetary policy, Bullard said.

“This puts downward pressure on nominal interest rates further out the yield curve, along with upward pressure on expected inflation,” he said. “Accordingly, the policy puts downward pressure on real interest rates.”

Bullard argued that along with the reduced speed of the economic recovery came a “worrisome” disinflationary trend.

He said monetary policy would normally be used to tackle that trend, “but U.S. short-term interest rates are already approximately zero.”

— Market News International

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