Fed’s Bullard Denies Summers Global Coordination Strategy

The global economy would see little benefit if the world’s central bankers coordinated monetary policy, a top Federal Reserve official said on Monday in defense of America’s easy money stance.

To fight a recession and nurse the U.S. economy back to health, the Fed has held short-term interest rates near zero since 2008 while printing trillions of dollars to buy up bonds.

This strategy has provoked concern among the world’s central banks, particularly in developing economies where some policymakers worry Washington’s exotic stimulus programs are destabilizing financial markets. The Fed’s signal last year that it would soon begin trimming bond purchases triggered sell-offs in global financial markets, although reaction to the actual winding down of the purchases has been more modest.

India’s central bank chief has argued that the world’s central banks should coordinate their policies, but St. Louis Federal Reserve Bank President James Bullard weighed in against this strategy.

“Possible gains are small, and it would be hard to get the world’s policymakers to play the cooperative (approach),” Bullard said in prepared remarks for a business conference.

Bullard said he thought the Fed’s aggressive bond buying and its pledges to keep interest rates low were effective policies for boosting U.S. economic growth. Coordinating policies globally would only make sense if this were not the case, he said.

Speaking to journalists after his presentation, Bullard said the Fed must keep in mind that any changes in its plan to wind down bond purchases could roil markets.

“Any change in the … program has fairly large effects on the financial markets,” he said. “For that reason we have to be careful about changing the tapering program.”

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza