NEW YORK – Although the macroeconomic outlook is softer, expansion is the most likely possibility going forward, Federal Reserve Bank of St. Louis President James Bullard said Thursday.
However, if economic developments suggest increased disinflation risk, the Fed may need expand its balance sheet by buying more Treasury securities.
Core inflation is at low, but still manageable levels, and that any additional quantitative easing undertaken by the FOMC should be a disciplined reaction to further disinflation risks, Bullard told a conference in Rogers, Ark,. “Large, sudden purchases rarely are optimal,” he said. “‘Shock and awe’ is almost never a good way to proceed.”
“Policy actions should be commensurate with the risks that the economy faces. A series of smaller policy actions can add up to a large action, but only if incoming data suggest that as the appropriate course,” he said. “Purchase size should be in proportion to the size of any deterioration in the outlook.” A key goal of the program should be to keep core inflation in the U.S. from falling close to levels observed in Japan.
Bullard said that the European sovereign debt crisis has abated somewhat, but remains a factor in the global economic mix.
