Bullard: New policy rule needed

by Wally Northway

Published: October 13,2009

ST. LOUIS, Mo. — During a speech Oct. 11 at the 51^st-annual meeting of the National Association for Business Economics, St. Louis Fed president James Bullard reaffirmed the need for a Taylor-type policy rule for the Federal Reserve’s asset purchase program.

Such a rule would help communicate how asset purchases may be adjusted as economic conditions change, while remaining consistent with the Fed’s goals of ensuring price stability and sustainable economic growth, he said.

Bullard also expressed concern that inflation risks in the medium term may be higher than widely believed. He said that too much emphasis is being given to the idea that the recession implies that the output gap is currently quite large, minimizing the risk of inflation.

He also proposed a different framework for how U.S. monetary policy could be implemented in the future using interest on reserves held at the Fed. A similar structure is already in place at several other central banks.

With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi.

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