St. Louis Federal Reserve Bank President James Bullard said Friday the central bank’s goals on employment and inflation are “within sight” and the progress made on the economy justifies the Fed’s decision to pull back on its monthly asset purchases.
Bullard, in remarks to the Arkansas Bankers Association, called the Fed’s tapering of its purchases “tame” compared to the reaction by markets last year – dubbed the “taper tantrum” – when the Fed hinted at tapering.
“But today,” Bullard said, “Fed goals are within sight. This helps to justify the FOMC’s tapering of asset purchases.”
Bullard, who will vote again on the Fed’s policy making Federal Open Market Committee in 2016, said, “the FOMC’s reductions in the pace of asset purchases have proceeded smoothly so far.” He didn’t comment on how he thought the taper should proceed, but has previously said it should continue in measured steps if the economy continues to improve.
Despite the performance of the economy in the first quarter, Bullard still sounded optimistic about the rest of the year. “First-quarter real GDP growth was weak, but forecasts for the remainder of the year are strong,” he said.
He pointed to the annualized GDP growth rate near zero for the first three months of the year, but said “the weak first-quarter performance has been widely attributed to particularly cold and snowy winter weather.”
Bullard also said some tracking models are saying revisions to first-quarter GDP could be even lower.
“While first-quarter GDP growth was weak, growth in coming quarters is still predicted to be robust,” Bullard said. “The average quarterly pace of growth in 2014 may still be an improvement relative to 2013.”
In terms of the Fed’s dual mandate of maximum employment and price stability, Bullard said “the FOMC is much closer to its policy goals than it has been in the past five years.”
Bullard said the violent reaction to talk of the taper in May last year, when long term U.S. interest rates rose, emerging market currencies depreciated, capital flowed to the U.S., and emerging market equities took a hit, “was based on perceptions of Fed actions.”
But he noted “one interpretation is that as of June 2013, it was premature to argue that the U.S. economy was strong enough to pull back on asset purchases,” Bullard said. “As of December 2013, better growth and employment data justified the taper decision.”