Fed’s Bullard Opposes Putting More Weight on High Unemployment

Bloomberg, April 17, 2013. All Rights Reserved.

James Bullard, president of the Federal Reserve Bank of St. Louis, said monetary policy should be guided by the central bank’s price-stability goal even with historically high unemployment.

“The idea that the Fed should ‘put more weight’ on unemployment does not fare well,” Bullard said in a speech in New York. “Such an approach may be highly counterproductive.”

Bullard supported the Federal Open Market Committee decision in March to continue to buy $85 billion in bonds every month until the labor market outlook improves “substantially.” It also pledged to keep interest rates near zero as long as unemployment is above 6.5 percent and inflation doesn’t exceed 2.5 percent. The unemployment rate stood at 7.6 percent in March.

Bullard, in his presentation on the current economy, said the U.S. unemployment rate has been declining at about 0.7 percentage point per year since peaking after the last recession ended.

“At this pace, the unemployment rate will be in the low 7 percent range by the end of 2013,” he said to the Hyman Minsky Conference on the State of the U.S. and World Economies.

While that rate is “high by historical standards,” Bullard cited academic work by economists Federico Ravenna and Carl Walsh as suggesting the Fed should use its inflation goal, which is 2 percent, as the main guide to policy.