St. Louis Fed’s Bullard Sees QE Continuation Under Low Inflation

June 10, 2013 by Jon C. Ogg

By now you have figured out that the Federal Reserve is full of mixed opinions when it comes to keeping up or tapering off the $85 billion in monthly bond and asset purchases under quantitative easing. The so called QE-debate continues and mixed economic reports only make that debate even more heated. St. Louis Fed President James Bullard is a voting member of the FOMC and he has signaled that he thinks the Federal Reserve can continue this QE policy further.

The news comes on the heels of Standard & Poor’s surprisingly removing the “Negative” outlook for the credit ratings of the United States. It also comes on a day when the 10-year Treasury is hitting a near-term high in yield at above 2.20%.

Bullard believes that low inflation allows the Federal Reserve to keep its aggressive bond buying if it is warranted. Stock market bulls and Treasury bulls may differ over what “warranted” translates to. Bullard’s take was that labor market conditions have improved since before the QE3 or QE-whatever led to bond buying. His take is that the FOMC can continue this path for a longer period as long as inflation remains low.

Before getting too excited here, this speech is not exactly full of new material. He has been dovish on several occasions since inflation has been very low. The markets are also not decided on a Bullard tank nor a Bullard rally. The S&P 500 is up less than 1 point at 1,644 and the DJIA is barely negative at 15,245. What remains up is long-term rates as the 10-year Treasury yield is up almost 6 basis points at 2.22% and the 30-year Treasury Bond yield is up about 5 basis points at 3.37%.