Fed Official Wants ECB Action To Lift Economy

A top official at the US Federal Reserve has called on the European Central Bank (ECB) to act to bolster the flagging eurozone economy to help the world's recovery.

James Bullard, who is the president of the St. Louis Federal Reserve Bank, spoke out as ECB president Mario Draghi prepared to speak at the annual gathering of central bankers and policymakers in Jackson Hole, Wyoming.

Mr Bullard's remarks followed confirmation a week ago that GDP growth in the bloc of nations which use the single currency stalled in the second quarter of the year , with German's economy actually contracting.

News (Other OTC: NWSAL - news) of the dire performance prompted renewed calls from economists for the ECB to introduce quantitative easing (QE) to boost money supply and take further action to prevent a possible spiral towards deflation.

During a round of interviews in Jackson Hole, Mr Bullard argued that central banks were operating in a global environment.

He told Reuters: "If Europe as a whole goes into recession, that would be a serious issue from the perspective of US monetary policy."

While he stuck to his forecast of a late first quarter interest rate rise in 2015, he said much depended on everything going according to plan as 2014 was supposed to be the year of recovery for Europe, which would have been bullish for the US economy.

He cited low inflation in the eurozone as a core concern.

Mr Bullard said: "To me, that's a flashing signal to the ECB that they need to take actions that are sufficient to reassure markets that they're going to hit their targets over the near term."

Euro area inflation was measured earlier this month at an annual rate of 0.4% - a near five-year low.

A failure to combat weak or negative price growth was blamed for 20 years of stagnation in Japan.

The ECB, which in June introduced a negative interest rate on deposits to encourage bank lending, has so far resisted following the Fed and the Bank of England (BoE) in deploying QE.

The Fed is in the process of slowing its stimulus package as the US economy recovers while the BoE has not added to its £375bn of asset purchases since July 2012.

Both central banks are mulling data on wage growth as they consider the timing of interest rate rises.

It emerged this week that two members of the BoE's rate-setting committee voted for a rate increase though official statistics released since the meeting took place showed a deterioration on the wages issue, with pay levels actually shrinking .