Speaking on the U.S. economic outlook in Tennessee, St. Louis Fed President James Bullard said his forecast on inflation and growth is uncertain in these times.

"In times of magnified uncertainty, it may be unwise to attempt to guess the level of economic performance. That said, my sense is that the pace of growth in the U.S. economy over the second half of the year will be positive but slower than its pace over the first half of the year," said Bullard in his speech.

Bullard said there are substantial downside risks from the financial market turmoil.

He also noted that the Federal Reserve interest rate is unusually low.

"Although recent developments suggest that headline inflation may moderate from its current levels, price pressures are elevated and several measures of inflation expectations are inconsistent with the medium-term projections of FOMC participants," said Bullard.



Bullard said slower consumer spending is of particular concern. He explained that the recovery of the economy will depend on housing, but that falling home prices do not have a big impact on consumer spending.

In a question and answer session following his speech, Bullard said rate cuts are not effective in this situation and that the impact of the previous cuts should be felt this fall.

Bullard added that he is very concerned about monitoring inflation.

He explained further that trying to control downside risks to the economy can have a bad outcome. He warned that even with restored liquidity, some firms will fail, adding that there is a need to limit systemic risk and the "too big to fail problem."

Finally, Bullard voiced his appreciation of the tremendous co-operation between global central banks.

By Steve Stecyk and edited by Sarah Sussman
©CEP News Ltd. 2008