Fed's Bullard says policy is at proper place (by Greg Robb)

WASHINGTON (MarketWatch)-- Monetary policy is appropriately ultra-easy given the macroeconomic situation, said James Bullard, the president of the St. Louis Federal Reserve Bank on Friday. In a speech on the outlook to a business group in Little Rock, Ark., Bullard said the Fed could respond "to a significant deterioration" to the economy. But he said the Fed "may be trying to do too much with monetary policy," risking monetary instability in the U.S. and around the world. The near-zero rate policy has been in place for more than three years and is projected for several more, he noted. This is far beyond the typical recession and recovery discussed in academic literature, he said. While the policy has been appropriate so far, it could "reignite a 1970s-type experience globally" if pursued too aggressively, Bullard said. This era included four recessions in 13 years, double-digit inflation and double-digit unemployment. The lesson is clear, he said: "Do not let the inflation genie out of the bottle." Bullard said labor market policies would be better than Fed rate policy to bring down unemployment.

Fed's Dudley: Unclear if soft-patch is over (by Greg Robb)

WASHINGTON (MarketWatch) - The "pay-back" to the economy from the mild winter is over but it is still unclear whether the economy will regain momentum, said William Dudley, the president of the New York Federal Reserve Bank, on Friday. "There are important issues - such as the outlook in Europe and the degree to which we have lost underlying momentum at home - where more information is needed before making an informed judgment," Dudley said in a speech to the annual convention of the Puerto Rico Chamber of Commerce in San Juan. Speaking by videoconference, Dudley said he will be watching closely whether domestic momentum and hiring picks up and whether financial conditions ease or tighten further. Dudley said he expects inflation to remain moderate. He said that credit conditions are gradually easing. There are "solid grounds" to expect growth will strengthen if Congress can avoid the fiscal cliff and European leaders can manage their challenges, he said.