James Bullard delivered an interesting, chart-rich speech on inflation, QE2 and global output gaps on Thursday. The now non-voting St Louis Fed President was a strong advocate of QE2 as a way to reverse alleged deflationary pressures. Bullard hits back at those claiming the Fed is importing inflation, saying — as Ben Bernanke did in Paris on Friday — that some “countries are choosing to import US monetary policy to some extent”.

But — and now we get to the really interesting bit of the presentation — Bullard does wonder whether the US should consider ‘the global output gap’. As John Kemp pointed out in his column on Thursday morning:

It is the first time a senior official at the U.S. central bank has acknowledged global capacity issues rather than a narrow focus on U.S. unemployment and capacity utilisation might give a better indication of where inflation is headed.

Bullard uses the following chart to suggest that “the global ouput gap is probably much narrower or even positive”: