A top Federal Reserve official said Wednesday he believes the economy could be on the verge of a spurt in growth and job creation.
"A lot of the businesses that I talk to are optimistic,” James Bullard, president of the Federal Reserve Bank of St. Louis, said in an interview with Fox Business. “They won't talk a lot about hiring. But I still think their top line is going up, their demand is going up, they'll be forced to add employees as we go forward here. They're very reluctant to do that, they are very cautious about it. But I think it will happen as we get going in 2011 here."
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When asked if the economy could return to pre-recession levels of job creation -- 250,000 to 300,000 jobs per month – Bullard said, "It's absolutely possible and may happen in 2011."
So far this year, employers have added about 100,000 jobs a month, though the pace of job creation has accelerated in recent months. The Labor Department will issue its next jobs report on Friday.
On Wednesday, the payroll processing company ADP reported employers added 93,000 jobs in November, above analysts forecast of 70,000 new jobs.
"I think we're really close to begin able to really get a strong recovery going in 2011," Bullard said. "A lot of companies have cash. They've built up cash reserves and if they felt confident in the economy, they'd come forward and make some capital investments, expand their businesses in an important way."
One way Washington could build confidence for companies, Bullard said, would be to extend the Bush tax cuts for all workers, even those making more than $250,000 a year, though he would not say for how long. The cuts are set to expire at the end of the month.
““The tax issue is a big one. Congress and the President need to come to a deal to extend these tax cuts,” he said. “I don't think you should be raising taxes in an environment where you are trying to get the recovery going."
Republicans are pushing for a permanent extension of all the Bush tax cuts, while President Obama supports extending them only for middle-income families. The two sides began meetings today to negotiate a possible compromise. Analysts believe they will agree to extend most, if not all, of the cuts for at least another year or two.
Bullard also defended the Fed’s latest economic stimulus step, another round of so-called “quantitative easing.”
Last month, the Fed approved purchasing up to $600 billion more in U.S. Treasury securities to help push interest rates even lower on mortgages, auto loans and business loans. In its announcement, the Fed said economic growth has been “disappointingly slow,” which has helped to keep the unemployment rate “elevated.” The move supplemented the Fed’s earlier cuts in short-term interest rates to about zero.
Though long-term interest rates have actually risen since the Fed announcement, Bullard called the securities purchase plan “successful,” saying it has helped keep rates “lower than they otherwise would be.”
"We're in there buying, so that's putting downward pressure (on rates),” he said. “But in some ways, if the policy is successful, that's going to put upward pressure (on rates), so there you go."
Bullard said the central bank could end up buying fewer or more securities, depending on how the economy performs. He is one of the regional Fed bank presidents who is a voting member of the Fed’s policy setting body, the Federal Open Market Committee, this year. He rotates off the FOMC at the end of the month as part of a regular, annual reconfiguration of members.
"I didn't really want to do the $600 billion number, but since we did it, I would interpret it as forward guidance from the committee,” Bullard said. "If the data came in there very strong, we could pause or we could do less. If data came in very weak, we could decide that really we need to do more, be even more aggressive."
Bullard acknowledged risks in additional quantitative easing, which critics charge will be ineffective and worry is laying the groundwork for higher inflation, a weaker dollar and financial market instability.
"It's a difficult issue, it's a tough call,” Bullard said. “There's lots of questions about it, which are very legitimate. Is it really going to work? What about Japan? Japan tried it. Aren't you monetizing the debt? All these things are legitimate things to think about. And I just felt like, at least for me…the benefits would outweigh some of those risks."