St. Louis Fed President Bullard Calls For More Quantitative Easing

Federal Reserve Bank of St. Louis President James Bullard thinks the Federal Reserve should continue quantitative easing if the economy slows and deflation rears its ugly head according to Bloomberg.

“‘The U.S. is closer to a Japanese-style outcome today than at any time in recent history,” Bullard wrote in paper released today about the possibility of deflation. “A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.”

The Federal Reserve is thinking about further ways of easing monetary policy after Chairman Ben Bernanke testified before Congress last week. Bernanke mentioned the possibility of using communication to signal the direction of interest rates, cutting the rate it pays banks on excess reserves or purchasing more bonds (a process known as quantitative easing).

The Fed completed an earlier round of quantitative easing back in March when it finished up buying $1.425 trillion of housing debt after completing purchases of $300 billion worth of Treasury securities back in October.

Bullard went to say, "“The conventional wisdom is that Japan has suffered through a ‘lost decade’ partially attributable to the fact that the economy has been stuck in the deflationary, low nominal interest rate steady state.” “To the extent that is true, the U.S. and Europe can hardly afford to join Japan in the quagmire.”