St. Louis Federal Reserve Bank president James Bullard Friday said rising inflation expectations have had the effect of easing financial conditions since last year, but suggested the central bank should keep monetary policy “on hold” while it assesses the strength of the economic recovery.

Staying on hold would mean keeping the federal funds rate at zero for “an extended period” and not allowing the Federal Reserve’s balance sheet to shrink, he said.

Bullard, in a presentation to an Arkansas State Banking Department event, said the rise in oil prices does not constitute a true “shock” and should not cause a “significant slowdown.” Nevertheless, he suggested that the strength of the recovery is somewhat in doubt, hence the need to keep policy on hold.

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