Fed policy must be state contingent: Bullard

James Bullard, the president of the St Louis Federal Reserve, on Monday said the Federal Open Market Committee was increasingly conducting policy based on predetermined actions and that policy should instead be state contingent.

At the Dialogue with the Fed: Beyond Today's Financial Headlines event, in St Louis, Missouri, Bullard said: "I think it is time for the committee to discard one-time policy changes with fixed end dates. The committee in the past never contemplated announcing several hundred basis point moves to be completed at a date certain. Yet that is how the committee behaves today."

Bullard said that with further slowing in the US economy, some had called for further monetary accommodation and that while no decision had been made, any future policy path should be state-contingent and not of premeditated size or duration.

Bullard said research indicated that optimal monetary policy should continuously respond to ever-changing economic conditions and that any policy path should be reviewed carefully and seriously at each meeting for possible adjustment given the incoming data. "In short, optimal monetary policy is not a one-time action or event, but a rule that takes the state of the economy and maps it into a setting for a policy instrument," he said.

Click here to read the speech.