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Monetary policy works when rates near zero: Bullard

Chicago (Reuters) - Central bank actions work better than tax and spending measures to protect an economy from shocks, even when interest rates are at rock bottom levels, St. Louis Federal Reserve President James Bullard said on Saturday.

"Monetary policy has been quite effective, even when the policy rate has been near zero," he said in remarks to an economics conference.

"It is not necessary, or desirable to turn to fiscal stabilization policy."

The Fed cut rates to near zero more than three years ago and has bought $2.3 trillion in bonds to spur growth. Some officials want it to buy more mortgage-backed bonds to boost flagging housing markets.

Despite signs the economic recovery is gaining momentum, many economist including ones at the Fed forecast sluggish growth and high unemployment through 2012. The Fed is expected to announce later this month projections that will show the benchmark fed funds rate is likely to stay near zero into 2014.

Bullard said that after the Fed cut interest rates to near zero, many people assumed that fiscal policies would be better tools to protect the economy from outside shocks. He said he would be publishing a paper that would disagree with that view.

"Stabilization policy should be left to the monetary authority," he said. "Fiscal authorities should set the tax and spending programs in such a way that makes economic and political sense for the medium to longer term."

(Reporting By Mark Felsenthal; Editing by Andrea Ricci)

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