Bloomberg Audio Studios, podcasts, radio news. Joining us now is someone who is very familiar with these types of speeches. Saint Louis FED President James Bullard, who recently was in the media talking about his preference for one hundred basis points of ray cuts this year heading into twenty twenty six,
also a potential contender. I should say to be the next FED chair James Jim, how much are you seeing what we heard from Fedchair j Powell and seeing anything different that you would really say say if you were at that podium.
He used the speech to solidify expectations for twenty five basis points in September. I was expecting that anyway, Marcus were expecting that.
He leaned into the most.
Recent labor market report, which was very soft, and so I think that's a done deal. He didn't say too much about beyond that, what you want to do with the October meeting or the December meeting. I have set one hundred basis points, you know, going into twenty twenty six, so I think you could adjust as you go forward and eventually get a full hundred basis points. But I would go slowly in order to watch the data and
then on the Framework review. I'm sure much earlier in the year they had targeted that they would have the framework discussion and that they would use the Jackson Hole speech to talk.
About changes for the framework.
I thought those were thoughtful and they were well presented in this speech, and they're about what many have speculated on.
So I think they did about as much as they can on the framework side.
Jim Bowler, Tom Keenan, good morning to you. I definitely consider this my conversation of the day. You served a lengthy term the Saint Louis Fed. You have lived the decline of a greater economy decades and decades ago in the effort to provide for a resurgence Saint Louis is a next chairman of the FED, whoever that may be. Do they have to manage for two American economies, a technology driven exceptional economy and another, to use a cliche,
America flat on their back. How would a chairman execute those two Americas?
Everything? Yeah, I think in commonwealth distribution have become more salient topics for the FED. It's not that clear how much the FED can really do providing interest rate policy for the whole economy. If you change the rate structure, that affects everyone, not just one particular group that.
You might be targeting.
So I think that's been something we've had to wrestle with, and I've actually done research on it myself to try to understand it better from my point of view.
So I think there's been been a theme for.
A while, and that'll be an important theme in macroeconomics going forward.
Mike McKee's got a lot of smarter questions than me on the immediacy of this speech. I'm going to ask one more distant questions, Jim Bollard. You're at Purdue executing online technology education every single day. How do you define the new technology productivity that America faces? Is it enough to save us? Is it enough to really add on to our present GDP.
Oh yeah.
I think that the AI boom is, you know, it's a general purpose technology that will diffuse through the economy. I think the key question is how fast does that actually diffuse? And sometimes marcus can get ahead of themselves and think it's going to happen sooner. Sometimes they're too late and it happens faster than markets think. But nevertheless,
anyway you look at it, It's an important technology. It can drive productivity, and I think in higher education is one of the places where you can really have the biggest impact. We put a AI requirement in at the Dannuel School here for every single student, and we're trying to expand that to all produce. So I think that just shows you how important this technology is.
Jim, it's Mike McKee. I have a question about sort of the process involved in this speech. The chairman is giving his own speech, but basically when he says it's time to maybe adjust policy, he's speaking for the entire Open Market Committee. Going into a speech like this, would he have polled everybody? Does he think he has the votes for that, because we've been speaking with FED officials in Jackson Hole and there are still some who were saying, well, we're not sure that we need to do that.
Yet He's going to report on the center of gravity of the committee, even though there might be people that have misgivings. At the June meeting, the committee had a median dot dot plot of two rate reductions by the end of the year, and I think the minutes, you know, suggested something that was more like fifty to fifty, but then the labor market report came in. I think that tilted the balance, so he could have he could have
pushed back a little bit. I think financial markets were expecting him to come be a little bit more hawkish here and try to set up a fifty to fifty meeting where you would wait and see for the rest of the data to come in. But I don't think that's where the center of gravity is on the committee, so.
He went ahead and leaned in.
I thought there was quite a bit of talk about the labor market at the at the beginning. You know, you could have could have been a little more, you know, a little more emphasis on the low unemployment rate, for instance. And you know he did come out at the end of that discussion saying, well, it's.
In balance, but we're a little bit nervous.
So I think, you know, I think he's accurately describing where the bulk of the committee is.
Well, where would you be on this question, because we've heard FED officials for some time now saying, yes, we had poor job creation in recent months, but the unemployment rate, as you just mentioned, has been low, and they've described the labor market as solid. Now this seems to be sort of a major shift in the way they view the outlook and the sort of balance between the two mandates.
Yeah, what he did at the end of that discussion, he said, well, it's in balance.
But I think the committee's nervous.
I think it has been slowing, and I think the policy rate is moderately restrictive. Is maybe you know, one hundred and twenty five basis points above the neutral rate. Is that really where you want to be in this circumstance. I think the answers no, So you can come down some and still have moderately restrictive monetary policy that puts
gentle downward pressure on inflation. And then the other thing I think has happened is that this argument from Chris Waller and others on the committee that the you know, you should look through the one time increase in goods prices coming from tariffs.
I think that's carrying the day.
And you know, then he emphasized that inflation expectations remain anchored and so on, and so I think that sets up a modest move downward in September.
Jim, We've been talking with you for years and you are very focused on the discipline of economics. Right now, I'm looking at the headlines that are crossing from the past hour. The top one, of course, is a Jerome Powell FED chair saying that shifting risks may warrant adjusting rates. The second one is that Trump says that he'll fire the Fed's Lisa's Cook if she doesn't resign as someone who is thought to be a contender to become the
next FED chair. Jim, how much does it concern you that there's this increasing political noise around the seat and exactly what the path of policy forward looks like.
Yeah, I want to see due process around something like this. I want to see you know, you can make.
Charges against anybody about anything, I guess, and you know the person can answer the charges, and the dojken decide what they want to do and so on. So I think this has, you know, should have longer to play out before you took that step. Otherwise it's just is kind of the wild West and sheet reinstated later, I guess or something if there wasn't a conviction.
So seems messy to me.
I think these kinds of these kinds of charges are made from time to time against various officials around Washington, but I'd like to see due process there.
Jim, there's another question here, and aside from Governor Cook and what happens there, about how the perception of political interference handles the market reaction to Fed policy. There is this perception that that could cause the dollar a week in more because there is more of an emphasis on supporting growth and supporting the label market than containing inflation.
And some people are worried that if the Fed does cut by fifty seventy five one hundred basis points, as you were talking about this past week, that you could see a move up in long end yields akin to what we saw last year. If you are on the FED currently and you did see yields along the long end moving up in response to near term FED rate cuts, what would you do?
That would definitely be a concern.
And that's the tricky part of this business is that you know, you think you're pursuing a dubbish policy at the short end, but the long end goes up because inflation expectations start to rise, Markets start to lose confidence in the FED and the credibility of the FED, and that can go very very badly, and unfortunately fairly quickly.
So I think you do have to be come. You do have to be careful here.
But I'm saying that I think that committee has room to maneuver if they proceed carefully over the remainder of twenty five and the first half of twenty twenty six.
I don't want to get out front of the debate here at the moment Jim Bullard, but what I would say to Chairman Bullart and Mike McKee, I got to turn to you. You and I used to sit and look at the dots and go which one is Bullart?
I mean you and I do.
It's fairly easy after a while to figure out.
I've Jim, Chairman Bullard, is your first act if you take over the FED as your first act to get rid of the dots.
Yeah. I've threatened to well.
As president, I threatened to withdraw from the dot plot.
I think this could be done better. This was discussed at the Framework conference and former chair.
Of Bernanke gave a very nice presentation and talk about a quarterly monetary policy report, get more organized about it, put out a forecast.
I think all of that could be done.
I've advocated that for a long time, and so I think that would sort of clear up some of the misconceptions around the dot plot.
Okay, this is really really important for US. Is Jim Bullard made He can have a history i'd say a decade ago with a small, short paper forceful on regime change. How do we get a new FED away from the guessing and the certitude and the silly parlor game of it, Jim Bullard, with great respect, how do we get to that more discipline study around the game of the FED and regime change?
Yeah, I think regime switching is a great way to think about the global economy and the US economy and how it operates. There are relatively long periods of time where you might have let's say, slow growth and very low interest rates, and then you might switch to another time with faster growth and higher interist rates. I think understanding that and understanding how that affects policy choices is a great thing to study further and talk about further
in the years ahead. So you know, I think it's very salient for what the Committee does.
Jim Bullard, FED, former FED President of the Saint Louis Bank, will be sticking with us. Right now. In markets, you can see a cheering across Wall Street to the opening the door to a potential rate cut next month. Potentially more. You could see equities surging higher across the different of the different indexes, led by some of the more interest rate sensitive sectors. The Russell two thousand. You can see ten year yields down now about six basis points, even
more at the front end, down ten basis points. As people look to the prospect of the FED looking through some of the inflation from tariffs, you could see the dollar markedly weaker one p seventeen on the euro dollar cross, up on nine tenths of a percent. In terms of just the percentage rise up about a basis point. And there's a real question here about what this means going forward. City Wealth Chief Investment Officer Kate Moore is still with us freezing a little bit because it is a little
bit chilly here, nippy in the morning. I am curious though about what you're hearing in terms of prospective FED chairs and the politicization of the Federal Reserve. If this is a FED willing to air on the duttish side, does that mean something that materially is higher with respect to returns and with respect to risk appetite.
Look, markets love certainty, and our investors love certainty, and we want a certainty in terms of the process around making monetary policy decisions. So I don't have any insight into who might be named next FED chair, but what I will say is if there is a sense that the process is changing, I think that will lead to
some pause and perhaps some volatility in the market. You know, our expectation is that regardless of who takes the next chair and what its seats are filled, we'll have a continuous continuation of the process of being data dependent, of being thoughtful, of having you know, great debate and discussion amongst the FED governors and their staff. But if that
were to change, I think that would introduce volatility. I think the most important thing for us right now is to recognize that so much of the data is going to be mixed through the back half of the year, and that's going to have a huge impact, I think in terms of investor sentiment, and I would suggest even more crowding in some of the favored trades.
We tend to get reactions like we're seeing in the market now on a day when news breaks, But I think we're probably going to see extended rally here because people are anticipating rate cuts. Does that worry you in terms of a bubble forming or some sort of excess spending that would push up inflation because of inflated asset prices.
Yeah, so I have been a little bit worried actually about positioning. I feel like I've been a little bit more cautious frankly than some of my peers on the street and saying, you know, people own the highest quality
parts of the market. It's quite crowded. Some of the shorts when we're looking at some of the fast money a community are very similar across the board, and we've seen people kind of shrug off concerns around economic growth or even the technological disruption across a lot of industries.
We've seen significant improvements in terms of the earnings or vision ratios, City Economic Surprise index has moved up, you know, and all of this together, I think sets us up for you a little bit of weakness if there was a bad data point or if there was a bit of a shock where there's a lot of consensus positioning, well, Jim.
Jim Bullard, I'd love to bring you back in here. How much does that concern you that sort of a bias to cut rates could cause uset price inflation to get ahead maybe of where the economy is.
Yeah, equities, except for just recently, equities have been doing very well as they've digested the new trade policy of the US and how that's going to play out.
Globally.
You've got the AI boom going on, really a driver for the big tech companies, and you know, I do get concerned that things we get ahead of ourselves. Sure it's a great technology and everything, but how fast is it really going to interfuse into actual productivity.
In the economy. But overall, I would.
Say, you know, it's possible that we'll get higher productivity growth ahead and really a good outcome for the second half of the twenty twenties here, much as we had in the half of the nineteen nineties.
All right, let me talk to the chief investment strategist Purdue University right now. I'm going to do a double barreled question, first to doctor Bullard and then to doctor Moore. Jim Bullard as simple as I can all of my conversations rather Jakomnagel Bundesbank, Kate Moore City Group and on and on is about an elevated or persistent nominal GDP.
Do you frame out that we're going to have an animal spirit in the country, whether it's better real growth okay, inflation too much inflation, okay, real growth, But what we're talking about forward is an elevated nominal GDP.
If you think real growth is going to be faster than yes, nominal gp growth would be faster even if the Fed hits it's two percent inflation target over that period. So yeah, you would see faster nominal GDP growth.
I mean, I look at this, Kate More, and it's a higher the matter, I'm really surprised by your comments. I think they're extremely important our back to the US quality, et cetera. But it sounds like City Group is modeling out through all the emotion, the fear, the turmoil, the political debate, as we just signed next to the eight foot bear in the lobby. The answer here is you're modeling out that will be okay and there'll be a better nominal GDP. It leads into revenue, et cetera.
Look, I think we're going to have an okay growth environment. But one thing we keep on talking about is sort of the K shape right. There are the haves and have nots across all the different industries and different consumer groups, and so I don't think that we want to assume that everyone is going to experience strong growth in the second half the year. And we're seeing this, of course in the consumer companies. We're seeing this across you know,
segments of different households. We're seeing this even in technology companies, those that have made the investments that are reaping dividends from it. So yes, we may have these good headline numbers, but I think as investors we have to really pay attention to what's going on beneath the surface, and I think there's an opportunity for differentiation over the next couple quarters.
We are looking at a market that is moving, We are looking at headlines that are coming. And I want to bring this to you that Canada is planning to remove retaliatory tariffs on many US products in an olive branch to President Trump, and there is this feeling that maybe some of the tariffs are fungible, that we are going to see some of them removed or used as a negotiating routate.
I strongly agree with what you're saying this was sort of out there in the ether last night, but to see these headlines is another example we adjust well.
And that's one of the reasons why there has been a focus on the labor market. Fed Chair to Rome Powell speaking just moments ago, really focusing on the complications for the labor market overall.
While the labor market appears to be imbalance, it is a curious kind of that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising, and if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.
Some people might say that FED Chair J. Powell is coming around the Chris Waller view of things, that there is this feeling of potentially the weakening and the labor marketing taking priority over inflation at a time where some of these tariffs are put on taken off, and that's what we're seeing a little bit in terms of negotiation this morning.
Well, the given the take and it goes back to Kate Moore's optimism on investment in America, and you see it a dollar thank you for putting up that wonderful dollar Larny chart and you see things adjusts and you wonder, Okay, what do we do with China, what do we do with Mexico with the produce debate and pharmaceuticals with Europe? Guess what there may be constructive supp rises. Is a certitude of the tariff debate gives way, It makes it easier for the next chairman and maybe maybe I'll get
out of triple leverge. Doll cash is fifty fifty.
Oh, now is the time to definitely do it? Yeah, for sure, Jim.
Before we let.
You get on with your day, I do want to finish there that have we seen from tariffs that there is this fungibility there that they get put on, they get taken off, and that right now the path of travel is lower from where we were maybe on April second, not higher again, and so you can look through in another kind of way some of the inflationary impact.
Yeah, I mean, I think it was great to reach a pluminary deal with the EU.
That's one of the bigger blocks in the world.
China put on the back burner markets like that for now, and then you've.
Got Canada and Mexico.
Looks like we're headed toward renegotiation of the USMCA, which I think would be a fine thing to revisit. Was scheduled for twenty twenty six anyway, so it's maybe a little bit more settled than it was earlier this year, and I think markets are liking that.
That's making it easier to plan. So far, so good on that.
Jim Bullard, former Saint Louis FED president, joining us, Thank you so much for being with us. Maybe future FED chair.
We shall see.