JONESBORO, Ark. — St. Louis Federal Reserve Bank President James Bullard Wednesday said he hopes that as the economy shows further signs of improvement he can convince the Fed to make gradual changes in its large scale asset purchases.
With no fixed end date for the current round of quantitative easing — which totals $85 billion a month in bond buys — gradual changes in response to evidence is a better way to adjust, Bullard told a small group of reporters following a speech to an agribusiness conference at Arkansas State University.
"What we should do is as we see improvement we should acknowledge that" and taper asset purchases gradually, he said. "That is a more continuous way to do it, more of an analog of how we do interest rate adjustments."
Without an end date to the current program "we may have to go in that direction, otherwise we would have to go cold turkey and that would confuse markets," he said.
Bullard, who is a voting member of the policy-setting Federal Open Market Committee this year, noted that his fellow committee members "have not wanted to adjust the program so far" but he said this time "I might have a chance of convincing everyone to go my way."
But for now he said he agreed with the Jan. 30 FOMC decision to continue current accommodative policy, and remains quite optimistic about the U.S. economy, noting as he did in his speech the easing of macroeconomic uncertainty which is "bullish" for U.S. prospects.
However, before advocating any pull back from current policy he said he wants to make sure the economy is progressing as he expects.
"I'm optimistic now but I have to see confirmation that my forecast is actually turning out to be the right one," he said, noting the St. Louis Fed's forecast for 3.2% growth this year and next, and unemployment this year of about 7.2%.
Asked about recent talk of currency war and competitive devaluation — with some countries lambasting the Fed's very easy monetary policy — Bullard stressed that if a central bank changes monetary policy "it should be for domestic policy reasons and let the current do the adjusting it needs to do."
"I don't think currency wars are very productive way for global central banks to act," he said.
He repeated his statement earlier Wednesday that he is concerned about the rise in farmland values, and the potential for a developing bubble, but said the development does not appear to involve much leverage that would be of concern.
Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.