http://www.bloomberg.com/apps/news?pid=20601087&sid=a8FZb4dKWUFI&pos=3

Nov. 18 (Bloomberg) -- Federal Reserve Bank of St. Louis President James Bullard said past experience suggests policy makers may not start to raise interest rates until early 2012, while concern borrowing costs have stayed “too low for too long” may prompt an earlier move.

“If you look at the last two recessions, in each case the FOMC waited two and a half to three years before we started our tightening campaign,” Bullard said today in a speech in St. Louis. “If we took that as a benchmark, that would put us in the first half of 2012.”

Bullard added that in the debate on when to tighten policy, “the idea that you might be creating asset bubbles by keeping rates too low for too long will be an important argument.”

Policy makers after a Nov. 3-4 meeting repeated that they will keep interest rates near zero for “an extended period” while saying policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.

The Fed must decide how to avoid spurring inflation while adjusting its $1.725 trillion in asset purchases, a main tool in its effort to sustain economic growth, Bullard said today.

“The main challenge for monetary policy going forward will be how to adjust the asset purchase program without generating inflation and still providing support to the economy while interest rates are near zero,” he said. Bullard is not a voting member of the Federal Open Market Committee this year. He will vote next year.

Dollar Falls

The dollar weakened to $1.4984 per euro at 11:55 a.m. in New York from $1.4876 late yesterday. The yield on the 10-year note rose two basis points, or 0.02 percentage point, to 3.34 percent as traders focused on next week’s debt sales.

Bullard said his 2012 outlook assumes the most recent recession ended this summer, and that the FOMC, as in the past, will begin to raise rates about two-and-a-half to three years after a return to growth.

“That should be the baseline that is in your head because that is the way the FOMC has behaved in the past, in the ‘90s and this past decade,’’ he told reporters after his speech.

‘‘There are reasons to think the FOMC won’t actually wait that long this time because of this ‘too low for too long’ argument, which is a powerful argument,’’ Bullard said. ‘‘It apparently created a lot of problems for us and blew up on us in this crisis. So we are going to have to debate that and think about that, going forward.’’

Rising Unemployment

The unemployment rate in the U.S. soared to a 26-year high of 10.2 percent in October as employers cut more jobs than forecast. Bullard said last month that a falling unemployment rate was among the conditions needed for an increase in the benchmark interest rate from near zero.

In the third quarter, gross domestic product expanded at a 3.5 percent annual rate after a yearlong contraction, Commerce Department figures showed Oct. 29. Household purchases increased 3.4 percent, the most in two years.

‘‘Stronger-than-expected global growth, especially in Asia, has been a main force’’ contributing to U.S. growth, Bullard said. Personal consumption and the housing sector have stabilized, while the stress in financial markets is abating, he said.

‘‘We’re projecting positive growth for the fourth quarter,’’ Bullard said. ‘‘Housing expenditure is coming back and I think that is an encouraging sign for recovery.’’

‘‘The most recent numbers on house prices have turned positive,’’ he said. ‘‘To be able to find a bottom in the housing market is an important part of the recovery process.’’

Inflation is still low, though global commodity prices are quite volatile and ‘‘inflation uncertainty remains elevated compared with last fall,’’ Bullard said.