Fed's Bullard QE Best Policy Option in Low Rate Environment

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With the Fed funds rate target near zero, quantitative easing is the best monetary policy option, Federal Reserve Bank of St. Louis President James Bullard said Tuesday.

"Quantitative easing is closest to standard monetary policy, involves clear action and has been effective," he said at Frankfurt's Institute for Monetary and Financial Stability Distinguished Lecture, according to prepared text of his remarks, released by the Fed.

In the past five years, he said, finding a route to ease monetary policy with near-zero rates was "the most important monetary policy question."

After declaring his preference for quantitative easing over the other options, Bullard explained, "Doing nothing risks the mildly deflationary situation experienced by Japan in recent years."

He continued, "Forward guidance depends on the credibility of promises for future central bank behavior, and can send an unwitting pessimistic signal about future macroeconomic performance." The other options, negative deposit rates and the twist program, he said would likely be "only minimally effective."

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