Fed's Bostic on Inflation Fight, Labor Market and Banks - Bloomberg Television

Fed Banker Sympathetic to Savers

One of this week's economic highlights is the Federal Reserve Open Market Committee meeting on Tuesday and Wednesday to decide on whether to raise interest rates.*
I think that we are going to see an inflation increase going forward,said James Bullard,President of the Federal Reserve Bank of St.Louis and an FOMC member.There's been a longtime disconnect between what the market thinks the Fed is going to do and what it actually does,Mr.Bullard cautioned.I'm not sure why we have to have this constant disconnect.Not only have we moved at meetings;we've also moved at inter-meetings.We reserve the right to move at any time.*
I felt that quantitative easing was pretty effective in the US.If we had to go back to that tool,I think we could do it.I feel that our toolbox is not nearly as empty as some seem to describe it.*
I think we should be able to tolerate mild overshoot:2.2 inflation is probably better than 1.5.I do think that it's a tragedy of sorts that we talk about borrowers and forget about savers.We want to do better in terms of equilibrium in the market instead of always borrowing from the future,Mr.Bullard told Bloomberg Radio.*
The Wall Street consensus is,the Fed won't raise rates at this meeting.

OMC United

The Federal Reserve's Open Market Committee voted unanimously on policy actions,leaving the key U.S. interest rate at 0-0.25%.The markets initially rallied on the statement,but later pulled back because of its inflationary implications.When the Federal Reserve buys Treasury and agency bonds,this tends to drive up interest rates,causing inflation.It is willing to take that risk now in order to restart economic growth.The Fed essentially prints as much money as it needs;it doesn't use tax dollars for its policy actions.The Bank of England has the same power and has enacted a purchase program in the U.K. similar to the Fed's.

Fed Hard At Work

The Federal Reserve has announced a major expansion of its balance sheet in order to resolve the financial crisis.In its statement last Wednesday,the central bank's Open Market Committee said the economy has continued to contract since January.Its policy to stabilize markets and provide financial and monetary stimulus will help resume growth.Nonetheless,the Fed will carefully monitor the size and composition of its balance sheet.It is expanding the sheet in buying up to 300 billion dollars of long Treasury bonds over the next six months,plus up to 750 billion in agency-backed mortgage securities.The OMC said interest rates will stay low for an extended period.The Fed anticipates expanding the range of eligible collateral for the TALF program.It will bring its total purchase of securities up to 1.25 trillion dollars this year.The expansion of agency-related purchases is aimed at supporting mortgage lending and housing.The Fed expects inflation to remain subdued,but the risk remains for weaker growth.

When Normalcy Returns

Ben Bernanke,wearing a black suit,white shirt,and a black tie,promised that once financial conditions have become more normal,the Federal Reserve's extraordinary measures will no longer be necessary,and private counterparties will be looked to again for financing.The economy remains under considerable stress,and activity has downshifted further since September.The Fed sees the economy slowing even after financial markets improve.When they do,the Fed's Open Market Committee will ensure that the Fed's balance sheet is normalized in a timely way,Mr.Bernanke reassured.