TOKYO - St. Louis Federal Reserve Bank President James Bullard said on Thursday that recent U.S. data have been "somewhat mixed" but not enough to change his basic outlook that the U.S. economy will grow at a "moderate" rate of 3% this year.
Bullard, here to attend an economic conference hosted by the Bank of Japan, also told reporters that he still expects the U.S. unemployment rate will tick down to 7.8% by the end of the year from 8.1% now.
At the next Federal Open Market Committee on June 19-20, it is unlikely that he would revise his projections "because the hard data on the U.S. has actually been fairly good."
Bullard said quantitative easing has helped turn around U.S. prices and inflation expectations and that he believes the BOJ's financial asset-buying operations will help Japan move out of years of deflation.
But he sounded cautious about the FOMC opting to conduct another round of purchases of U.S. government bonds.
"I do think that the most potent weapon as our committee is to do further quantitative easing but if we take such action, we'd also be taking more risk on with our balance sheet," he said.
Calling the European debt and political crisis a "grave situation indeed," Bullard called for "vision and rapid action by the European policymakers to get control of the situation so that it doesn't turn into a major meltdown for the world economy."
A global meltdown would have a significant impact in Asia, he said.
"I have been a little bit concerned about the slowdown in Asia and the weaker data coming out of China. I think some of that is due to their export markets in Europe being weaker than expected," Bullard said.
He said he is not sure how the Chinese economy will evolve throughout the rest of 2012.
"Obviously the European situation has been weighing on the global markets and that's what's has been driving the U.S. and Japanese equity markets down," he said.
Flight to quality effects are pushing down yields on the U.S., Japanese and German government bonds while prompting the yen to rise against other currencies.
Bullard said he thinks Greece could exit the euro without causing significant damage to the European monetary union but that it would have to be handled very carefully.
"The Greeks have to make a decision for themselves as to whether they want to be in or out of the EMU," he said, adding that the rest of Europe has to be ready for the results of the Greek election.
The European Central Bank "can temporarily inject liquidity" as it has done with long-term refinancing operations, which has bought time for other European policymakers, but "it doesn't change the fundamental situation," which is the governments cannot borrow indefinitely and try to borrow their way into prosperity."
He also urged the Japanese government to get its own unsustainable public debt under control.
As for the U.S., Bullard said "the fiscal cliff situation is a real threat to the U.S. economy" as financial markets tend to price in future events and Congress may not act on the large spending cuts and tax increases that are slated to be automatically enacted at the start of 2013, until after the presidential election in November.
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