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Fed's Bullard warns against lengthy stay at zero *PIC*

Fed's Bullard warns against lengthy stay at zero (by Greg Robb)

WASHINGTON (MarketWatch) -- Keeping short-term rates at zero for years could be a "looming disaster" for the U.S. economy, said James Bullard, president of the St. Louis Federal Reserve Bank, on Monday. In a speech at the Union League Club in Chicago, Bullard said zero rates "could be counterproductive." Because zero rates punish savers, older Americans are being hurt, while younger Americans, who are supposed to benefit from zero rates, are not able to take advantage of low rates because of high unemployment rates, Bullard said. The St. Louis Fed president took issue with the doves on the Fed who argue that the economy is suffering from an "output gap," or running far below where output would have been if the recession had not hit. Bullard said 2007 should not be a benchmark because the economy was affected by the housing market bubble. So this sets the bar too high for the economy, he said. Instead, Bullard argued that the economy was hit by a one-time wealth shock and that is why the economy has not bounced back.

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Fed's Bullard warns against lengthy stay at zero *PIC*
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