Bullard: Fed Can Adjust Balance Sheet Further QBy Greg Quinn - Sep 9, 2011 2:06 PM CT
St. Louis Federal Reserve President James Bullard said policy makers need to consider if further stimulus is needed after the U.S. economy slowed in the last few months.
?The economy has weakened over the summer? Bullard, 50, said in an interview with Toronto-based Business News Network today. ?We have to think very hard about what our policy options are.?
Federal Reserve Chairman Ben S. Bernanke said yesterday that policy makers will discuss the tools they could use ?to promote a stronger economic recovery in the context of price stability? at their Sept. 20-21 meeting. Options may include buying more government bonds and lengthening the duration of securities in its $1.65 trillion Treasury portfolio, a move called ?Operation Twist? after a similar program in the 1960s.
Asked if the Fed still has the power to deliver momentum to the recovery, Bullard said, ?I?m not one to say we are out of ammunition.? Bullard, who is not a voter on the Federal Open Market Committee this year, said the Fed can still stimulate the economy ?mostly through balance-sheet policy.?
?The committee has made no decision on ?Operation Twist,? so I think the market might be a little bit out in front on this question,? Bullard said. He added that when the Fed last tried this policy, ?it didn?t work very well at that time.?
The world?s largest economy may still expand at a pace exceeding 2 percent in the third and fourth quarters of this year, Bullard said. ?The chances of recession are only modest at this point,? he said, adding the recovery of the U.S. housing market will be a ?long slog.?
Dissent Reflects Debate Bullard said that dissenting votes cast in recent FOMC decisions reflect both the extraordinary economic situation and a healthy debate.
?We try to avoid group-think,? he said in the televised interview. ?You shouldn?t be surprised to see some dissenting views.?
Investors shouldn?t expect European leaders to create an ?instant? solution to their fiscal crisis, in part because legislatures across the region need to pass some agreements, Bullard said.
?There are going to be ongoing negotiations for a long time, possibly for a couple of years,? he said. ?European leaders absolutely have the resolve that they need to keep the European project together.?
A potential default by Greece on its sovereign debt would not necessarily lead to a systemic failure, Bullard said. ?It could be contained,? Bullard said. ?That would depend on exactly how it was handled.?
