Normalization in U.S. monetary policy will be the key theme this year, according to St. Louis Federal Reserve President James Bullard.
With inflationary pressures mounting, Fed officials may not be willing or able to wait until every single global uncertainty is resolved before tightening monetary policy, Bullard said Tuesday morning in Prague.
"If we wait too long we will get a lot of inflation in the United States and around the world," he cautioned.
Bullard raised the possibility of scaling back the Fed's controversial $600 billion quantitative easing program.
"I think we could pull up just a little bit shy of our total of $600 billion and I think by doing that we could begin the process towards normalization, we could go on pause for a little while and see how the economy develops through the summer."
The dollar strengthened on Bullard's comments, as traders bet the timeline for the Fed's tightening cycle may have moved up.
"If the economy develops as I hope and think it will be during 2011, I think it will be time for us to start to reverse our ultra-aggressive and ultra-easy monetary policy," Bullard said.
The Fed maintained its record low interest rates and asset purchase plan earlier this month, citing high unemployment and lingering weakness in the housing sector.
"One of the things that I'm concerned about is that policy is so easy right now, that we have to get started on the process of getting back to normal, because it will take a long time to get back to normal," he added.
by RTT Staff Writer
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