Federal Reserve Bank of St. Louis President James Bullard, who has backed the Fed’s $85 billion in monthly bond purchases, said the current low pace of inflation wouldn’t ordinarily prompt the central bank to curtail stimulus.
“The committee would not normally remove policy accommodation in an environment where inflation is below target and is projected to remain there,” said Bullard, who votes on policy this year, in Louisville, Ky. The Fed’s inflation target is 2%, above its preferred inflation gauge which showed prices rising 1.3% in the 12 months ended June.
The cost of living in the U.S. increased last month for a third month, supporting the Fed’s forecast that inflation will move closer to its target. The consumer-price index increased 0.2% after a 0.5% gain in June, Labor Department figures showed.
Asked after his speech about the consumer-price index, Bullard said to reporters, “to the extent you have higher inflation numbers in this report, that would be bolstering the notion that inflation would naturally be moving back toward target in the coming months and quarters.”
One concern is “inflation may be pushed even lower by a decision to taper and hence the risk of deflation may increase,” Bullard said in his speech, referring to a debate among Fed officials over when to begin reducing bond buying. His speech is identical to comments by him on Wednesday.
Chairman Ben Bernanke will probably begin to dial down asset purchases at a meeting of the Federal Open Market Committee Sept. 17-18, according to 65% of economists surveyed by Bloomberg Aug. 9-13.
