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Fed bank president cites missteps by policy makers

James Bullard said Fed forecasts have been too optimistic.John Tlumacki/Globe Staff/Globe Staff

It isn't every day you hear a top Federal Reserve official talk about the Fed's missteps, but James Bullard, president of the Federal Reserve Bank of St. Louis did on Friday afternoon in Boston.

Bullard, speaking at Brandeis University's annual Municipal Finance Conference, said his economic forecasts, as well as those of other Fed policy makers, have generally been too optimistic in the aftermath of the recession.

"If you followed my forecast, you probably lost a lot of money in the last few years," Bullard said to a luncheon crowd at the Park Plaza drawing a few laughs. "Even the most pessimistic person was too optimistic about [economic] growth."


Bullard's comments come at a key time for the Fed, as central bankers debate when they should begin reining in the unconventional stimulus policies unleashed to spur a slow-moving US economy. Bullard weighed various factors the Fed board will consider — from unemployment to inflation — before starting to gradually withdraw the stimulus from the economy, saying the central bank is in a "wait and see" mode.

Investors, businesses, and home buyers have watched for hints of when the Fed might start reducing its purchases of US Treasurys and mortgage-backed securities, a program aimed at holding down long-term interest interest rates and boosting economic activity, such as home buying. Earlier this year, analysts predicted the Fed could start unwinding the program as early as next month, but weaker economic data recently has led some to project that the Fed will wait.

On Friday, a disappointing employment report help support that view. US employers added 162,000 jobs, the Labor Department said, fewer than economists expected. The unemployment rate fell, in part because more people stopped looking for work. Only those who actively seek jobs are counted as unemployed.


Bullard's own views about the Fed's bond-buying activities have "evolved a little bit," he said Friday, though he did not elaborate on exactly how.

Bullard is a careful watcher of inflation. Initially, he criticized the Fed's bond purchase program, fearing it could lead to a spike in inflation. Those concerns have been proven wrong. In recent months, Bullard has worried that inflation is too low, making the economy vulnerable to deflation, a destructive cycle of falling prices, stagnant economic growth, and high unemployment.

Bullard was one of two dissenting votes at the June 18-19 Federal Reserve policy-making meeting. He later issued a public statement outlining his concerns, an uncommon act in the restrained culture of the Federal Reserve.

"We're running quite a bit below target" inflation, Bullard said Friday. "We don't really have a good explanation why."

Core inflation has fallen to 1.2 percent, well below the Fed's goal of 2 percent. Bullard has raised concerns in interviews that this could lead to an era of deflation comparable Japan's so-called Lost Decade, of the 1990s, a period of extended stagnation that is still affecting the Japanese economy.

Bullard has said he would support continued Fed stimulus if inflation fell further.

US unemployment has been on a slow decline, he said. He added that the decline has "puzzled" economists because overall economic growth has been "tepid" since the end of last year.

When an audience member asked whether major corporations were replacing jobs with technology, he said matter-of-factly: "Technology creates jobs."


US companies have adjusted workforces to "make money whatever the situation is," Bullard said. But deep economic problems in Europe and a slowdown in Asia have cut profits.

"The US looks very good on a global scale right now . . . an island of stability," Bullard said. "I think we're positioned for good growth, but boy, I want to see the numbers, not the forecast."

Megan Woolhouse can be reached at megan.woolhouse @globe.com.