Euro crisis? Don't worry, America.
Euro crisis shouldn't have much effect on US, unless it blows up into something much larger, says James Bullard of the St. Louis Fed. But euro crisis will be drawn-out affair.
St. Louis Federal Reserve Bank President James Bullard says the euro debt crisis will 'tumble along' for some time, but shouldn't have much impact on the US economy unless the crisis blows up.
St. Louis Federal Reserve Bank/Reuters/File
Europe's persistent debt crisis is likely to "tumble along" for an extended period of time but not have much effect on the U.S., St. Louis Federal Reserve President James Bullard told CNBC.
Rather than explode and cause global contagion, the problems countries听such as Greece and Italy have repaying their sovereign debt听probably will be contained, said Bullard, who believes听the Fed听has sufficient policies in place to safeguard the American economy against the euro crisis.
听"Obviously Europe is a risk. We don't know what's going to happen," he said. "If it blows up in a big, disorderly way, which is what everybody is worried about, then that could come back to haunt us. If it just kind of tumbles along for a long period 鈥� which is the most likely outcome 鈥� then I'm not sure you'd get much feedback to the U.S."
听American consumers don't seem to be bothered by the debt situation in any event, Bullard added.
听"Europe is too far away for the American household to get them to cancel the Disney World trips," he said. "They will not pull back from their ordinary activities just because they're getting a lot of headlines about something going on in Italy or France."
听Bullard has expressed some misgivings with steps the central bank has taken over the past several years to address first the financial crisis that blew up in 2008 and later the threat of the U.S. economy slipping into another听recession.
The Fed has expanded its balance sheet to nearly $3 trillion, much of which has come in the form ofquantitative easing听policies where the Fed has purchased Treasurys and other debt to stimulate the economy.
听In September, the Fed announced听what the market common calls Operation Twist听鈥� selling shorter-dated debt and buying longer-dated in an effort to drive down long-term interest rates.
听Along the way the Fed has stated it will keep its target interest rate near zero until at least mid-2013.
听"You should never make policy based on the calendar. You should make policy on the state of the economy," Bullard said.
听Yet he believes the Fed's extraordinary measures to prop up the economy have been mostly necessary.
"We've promised to stay at zero through at least 鈥� remember the words 'at least' 鈥� mid-2013," he said. "We've done many, many things that are outside the normal realm of monetary policy. We've been very innovative."