MNI POLICY: Fed's Bullard: Policy Right for Now; Watching Infl

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Bank of St. Louis President Jim Bullard

said Thursday monetary policy is at the right setting for now and he would only

support another interest rate increase if inflation expectations pick up more

than expected. 

     He argued against the FOMC's December rate increase, he told reporters,

adding he would have also preferred to temper the policy statement language on

inflation to note that readings had softened and market-based measures of

inflation expectations had "declined precipitously."  

     "For right now, the right place is where we are, and we should react to

incoming news, not projecting that there are further increases to come," he

said. "That sends a hawkish signal that is making markets think inflation won't

hit the inflation target either in 2019 or beyond." 

     Bullard votes on rate moves this year on the FOMC and has for months

advocated leaving rates untouched. 

     He also reiterated the Fed's stance that interest rates are its primary

policy tool, not the size of its balance sheet. 

     The committee's balance sheet normalization plan has not had a major impact

on liquidity conditions so far, he said. The FOMC has yet to decide the ultimate

size of the balance sheet, but "there seems to be some consensus emerging that

the balance sheet will be quite a bit larger than it would have been before the

crisis," he said. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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