Economy Won't Double-Dip; Growth Back in 2011: Bullard

Economic growth has turned slower than policy makers had expected but will steady into the end of the year and get back to normal in 2011, St. Louis Fed President James Bullard told CNBC.

James Bullard

Speaking just before Chairman Ben Bernanke delivers an address at the central bank's Jackson Hole, Wyo., summit, Bullard said the Fed will continue to use monetary policy to help the recovery. He said the actions so far have helped the economy stay out of a double-dip.

"Growth has slowed into the second quarter, there's no question about that. We're in a soft patch for the economy," he said. "It's a difficult situation for monetary policy, and we have to come up with the right response."

While not disclosing any specific actions the Fed would employ, he pledged that the central bank would stay on top of the situation and take actions as necessary.

"What I say is we can do what we can do, which is define our inflation targets, especially on the low side," Bullard said. "We have to be sure that we do not slip into a further disinflation situation as the economy is weakening here."

His remarks came just after the government revised its second-quarter reading on gross domestic product down to an anemic 1.6 percent, from an earlier estimate of 2.4 percent. Unemployment remains mired at 9.5 percent.

Bullard caused a stir earlier this month when he released a paper and appeared on CNBC to warn that the economy was in danger of slipping into a Japan-like lost decade of low or no economic growth.

But the remarks Friday seemed to dispel those fears, though he said there are challenges on the horizon.

"The monetary policy is extremely accommodative—an ultra-loose policy with near-zero rates supplemented with the quantitative easing program. Now the committee's possibly contemplating a little bit more in that direction, so I think we've done a lot here and we've been very successful in the big picture," he said.

"It's true the most recent data is a little weaker than we would like, but I still think the outlook is positive for the second half of the year going into 2011."

The question of what the Fed will do now that it no longer can lower interest rates has been central for investors concerned that the nearly $1 trillion in government stimulus still hasn't been able to generate an abundance of economic growth.

At the same time, there has been growing debate among Fed governors that its policies could be laying the groundwork for inflation. Bullard said the central bank needs to be measured in its approach to future quantitative easing measures.

"If we try to do more than keep the balance sheet constant, I think it should be a disciplined program where e do tell the market what we intend to do, we make moves, but as we would do with interest rates, we have an idea about what the future path should be," he said.