U.S. policymakers may not be willing or able to wait for all global uncertainties to be resolved before they begin normalizing loose monetary policy, St. Louis Federal Reserve President James Bullard said on Tuesday.
Such issues include the turmoil in the Middle East and North Africa, the aftermath of the Japanese tsunami, the European sovereign debt crisis and the U.S. fiscal situation and possibility of a government shutdown, Bullard said in a speech in the Czech capital.
Because we are so accommodative right now, the FOMC may not be willing or able to wait until every single global uncertainty is resolved before we can begin normalizing policy, he said, referring to the policymaking Federal Open Market Committee.
Bullard, who is not a voting member of the Fed's policy setting panel this year, added: If we wait too long we will get a lot of inflation in the United States and around the world.
On the main global risks, he said that the most likely prospect was that they would be resolved without becoming global macroeconomic shocks.
The Fed has kept short-term interest rates near zero since December 2008 and has bought more than $2 trillion in long-term securities to push borrowing costs down further and boost recovery from the 2007-2009 recession.
Bullard, seen as a centrist on the spectrum of supporters and opponents of aggressive Fed actions to boost the economy, said that the process of normalizing policy would still leave unprecedented policy accommodation on the table.
His comments on Tuesday came after he said at the weekend that the Fed should consider trimming its $600 billion bond purchase program given solid U.S. economic data.
On Monday, top Fed officials said the U.S. economy still needed support from the Fed's bond buying program, which is slated to end in June, with some suggesting recent spikes in gas and food price are likely to be short-lived.
GROWTH PROSPECTS IMPROVE
Bullard said in Prague on Tuesday that growth prospects remained reasonably good and had improved since last summer.
Anecdotal reports were more bullish, which showed profitable businesses with considerable cash and an improving outlook, he said, adding an improving economy 18 months post-recession was a strong positive.
As 2011 started we were about 18 months past the end of the recession, and that's about the kind of timing when I would expect the economy to pick up and start growing fairly rapidly, Bullard said.
But he said any failure to address the U.S. fiscal situation would pose a risk to U.S. and global recovery.
President Barack Obama's Democrats on Monday offered to cut another $20 billion from the U.S. budget in an attempt to reach a deal with congressional Republicans that would avert a government shutdown.
Bullard said monetary policy could not remain ultra-accommodative indefinitely. Discussion of the normalization of U.S. policy will likely return as the key issue in 2011, Bullard said.
(Writing by Michael Winfrey and Jason Hovet; Editing by Hugh Lawson/Hugh Lawson