Second Round
The central bank started a second round of asset purchases, or quantitative easing, in 2010 amid concern about deflation risk. Bullard, warning of a Japan-style fall in prices, called on the Fed to buy Treasury notes in a paper entitled “Seven Faces of the Peril.”
The Fed may need to step up stimulus to avert continued disinflation, Bullard said yesterday to reporters after a speech in New York.
“If it doesn’t start to turn around here soon, I think we’ll have to rethink where we are in our policy,” he said.
The FOMC in March reaffirmed plans to buy bonds at the current pace until the labor market outlook improves “substantially.” It also pledged to keep interest rates near zero as long as unemployment is above 6.5 percent and inflation doesn’t exceed 2.5 percent. Unemployment in March was 7.6 percent.
Spur Growth
It’s “very important to protect the target” for inflation when prices rise or fall too much, Kocherlakota said to reporters today in New York. A further drop in inflation would make him “even more” supportive of additional accommodation to spur growth, he said.
Kocherlakota has called on the Fed to increase stimulus by pledging not to consider raising the benchmark interest rate from zero until unemployment declines to 5.5 percent.
In an April 16 speech, Kockerlakota predicted inflation pressures will “remain subdued” while advocating “a more accommodative monetary policy that puts more upward pressure on prices.”
Lacker said today he doesn’t see an imminent threat from disinflation.