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Fed's Bullard ties bouts of global volatility to ineffective policy
[PALO ALTO, California] St Louis Federal Reserve President James Bullard on Thursday said that some recent bouts of financial market volatility, including the global stock swoon last August, could be related to the ineffectiveness of unconventional monetary policy.
Since the financial crisis, many global central banks including the Fed have not only pinned short-term interest rates at or near zero but have also bought massive amounts of bonds and other securities in an effort to stimulate investment and hiring.
Such unconventional tactics, Mr Bullard suggested, may not be as effective as traditional modes of monetary policy. "If unconventional monetary policy is ineffective, then the global equilibrium may be overly volatile," Mr Bullard, a voting member of the Fed's policy-setting committee, said in remarks prepared for delivery to a monetary policy at Stanford University's Hoover Institution.
Examples of such volatility may include market reaction to the so-called taper tantrum in 2013, to the prospect of further easing by the European Central Bank during the fall of 2014, and the surprise devaluation of China's currency in August 2015.
Such pronounced market reactions may argue for better coordination among central banks, at least while they are relying on unconventional policies, Bullard suggested. When central banks are using conventional policy, the benefits of international monetary policy coordination are few, he said.