US Inflation Too Low to Taper QE: Fed's Bullard
James Bullard, president and CEo of St. Louis Federal Reserve Bank, explains why inflation is the "wild card" of U.S. data and argues it would have to be higher to start tapering the Fed's bond purchases.
"It could be that the pretty low numbers is just noise in the data, we could get another couple of months of the data, things could start to turn around and we start to feel more comfortable,"
"But if you look at the data over the last 18 months – it has been on a downward trend. We are down at 1 percent- that is a pretty low number for inflation targeting central bank, " he added.
Bullard also expressed his concern for older savers who are being hit by the Fed's ultra-low interest rate policy and said the extreme nature of this recession has caused the policy to be stretched out.
(Read More: What Central Bankers Can Learn From Volatile Markets)
"This is one thing I am concerned about, that our policy is punishing savers ," he said.
"Here is what I would say, if it was a normal recession and recovery cycle you might lower interest rates for 6, 9 or 18 months and then go back to normal, so there would a bad period where you have lower returns for the older saver cohort, but they would get back to normal after not too long," he said.
Bullard said it was a distributional consequence of the Fed's interest rate policy that he was "increasingly concerned" about.
"It [the recession] has been stretched out, we are talking 4, 5 years, maybe a decade – if you have low returns for that period , this is really hurting that whole cohort of savers in that age group, so I am concerned about that part of the policy," he added.
—By CNBC's Jenny Cosgrave; Follow her on Twitter @jenny_cosgrave.
24 May, 2013
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Source: http://www.cnbc.com/id/100763999
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