The Wall Street Journal reports
''A strong U.S. economy facing its best prospects since the financial crisis will likely allow the Federal Reserve to steadily reduce its monthly bond purchases, St. Louis Fed President James Bullard said Wednesday in an interview with The Wall Street Journal''.
Mr. Bullard said the recent decline in the jobless rate is for real, downplaying concerns that it is partly driven by a decline in the number of Americans in the labor force.
"The bottom line is then you should take the signal from the unemployment rate decline as a signal of an improving labor market and an improving economy," Mr. Bullard said.
Mr. Bullard, who has expressed concern about low inflation, says he expects it to return to the central bank's official 2% target. "The main factor driving inflation is inflation expectations. Those have remained relatively well-anchored up to now and that's why my forecast for inflation is that it will go back to target," he said.
However, he added that further declines in key inflation measures, currently hovering around 1%, would put pressure on Fed officials to take some sort of policy action to drive it higher.
Mr. Bullard is forecasting the U.S. economy will grow 3% or more this year, bolstered by the fading drag from tight fiscal policy from Washington.
"The economy is much closer than normal than what we're used to thinking about over the last five years," Mr. Bullard said. As for a recent batch of bad data: "My gut instinct is that weather has been an important factor during this period," he said.
The rosier backdrop raises the bar for any pause in the Fed's steady reduction in bond buys.
"It would be a powerful signal if we decided to deviate from our taper," Mr. Bullard said.
