Federal Reserve's Bullard says low inflation may warrant prolonging QE

WASHINGTON: Federal Reserve Bank of St. Louis President James Bullard, who has voted this year in favor of maintaining stimulus, said inflation below the central bank's 2% target may warrant prolonging the "aggressive" use of bond-buying to spur growth and bring down unemployment.

While "labour market conditions have improved since last summer," Bullard said on Monday, "surprisingly low inflation readings may mean the Committee can maintain its aggressive programme over a longer time frame."

The Federal Open Market Committee, which meets next week, is discussing when to slow $85 billion in monthly bond purchases, with San Francisco Fed President John Williams saying last week a "modest adjustment downward" in the buying is possible as "early as this summer." Atlanta Fed President Dennis Lockhart said "very mixed" economic data makes him "more cautious" about a near-term reduction in purchases. The FOMC said on May 1 it will continue buying bonds "until the outlook for the labor market has improved substantially." Payrolls rose 175,000 in the US last month, while the unemployment rate climbed to 7.6%, Labor Department figures showed June 7.

Bullard has urged the FOMC to make "meeting to meeting" incremental adjustments to its bond buying in response to economic indicators. Slow but steady growth, improving labor markets and limited excesses in financial markets "suggests that the FOMC can continue to pursue its aggressive asset purchase programme," he said.