Fed’s Tarullo: Recovery Looking “Well-Grounded” Going Forward

MNI | Deutsche Börse Group, April 9, 2014. All Rights Reserved.

WASHINGTON (MNI) – Federal Reserve Board Gov. Daniel Tarullo Wednesday night sounded bullish in his outlook for the U.S. economy the rest of this year, saying the Fed’s aggressive actions have continued to play a major role.

"Unconventional monetary policies have been critical in supporting the moderate recovery that we have had, which I think now is looking reasonably well-grounded going forward," he said during a question and answer question following a speech at the Levy Economic Institute’s Hyman Minsky Conference.

This is reflected in the "fairly large" expectations that growth is going to be picking up over the course of this year," he said.

The U.S. economy is recovering at a modest pace, Tarullo said, and he argued that the policy pursued by the Fed "has been essential to ensure that moderate pace of recovery."

At the same time, he acknowledged that the Fed’s aggressive actions have not created "the kind of recovery that everybody would have preferred."

Tarullo said the Fed’s asset purchase program and its zero interest rate policies have had "a pretty demonstrable effect" on interest rate-sensitive sectors such as auto sales and the housing market.

"In doing what we have done to try to affect longer term rates and not just short-term rates, I think we’ve actually facilitated a bunch of economic activity that would not have otherwise taken place," he added.

The level of aggregate demand continues to be inadequate, he said, a fact that is highlighted by the "relatively low rates" of capital investments by businesses.

This is because firms have decided that "the demand they expect does not justify the additional investment in capacity," Tarullo said.