Jim Bullard Talks Monetary Policy

Bloomberg Audio Studios, podcasts, radio News.

We got so much to talk about with James Bullard. Of course, original is Saint Louis Fed with all the research heritage of the Saint Louis Fed his PhD from Indiana University, and he's wearing a boiler up Purdue pin today with this wonderful challenge that's taking on. What's the difference between I you in Purdue.

Purdue is number four engineering school in the country. So it's MIT Stanford.

Berkeley out in the Midwest.

Yeah, and so the medical school is down at IU, but engineering is at Produce. So it's a great technical university and the business school is aiming to combine even better than we have with the engineering school and get great graduates school.

You're enjoying the private life.

Oh I am, and it's it's going very well. Well. It's great to be back on campus and around the students and hanging out.

I want to go back to I believe it was twenty sixteen and doctor Bullard, you had a profoundly important paper saying, as Leguard is saying at the ECB, we got to get off this idiot media micro analysis of data and look at the regimes that we live in as we go to this FED meeting today, within disinflation, with the FED, with the ECB leading, and of the rate cut for Jim Bullard, Is there a new regime out there right now post pandemic.

I do think we've switched regimes. We're in a higher nominal interest rate, higher inflation environment, and I think that means that comparisons should be made more to the second half of the nineteen nineties in the first part of the two thousands than to the twenty nine to twenty nineteen period, which was a low nominally straight low inflation regime.

Paul wants to get here. We're going to tie the bow here if I can. It's critical. Is this the press conference where we get some form of hint or statement to where Bullard and Clarida are, which is away from the slavery.

Of two point zero percent? Uh?

Do we get a higher an understanding of a higher run rate for our start or for inflation?

Uh? Inflation, No, the inflation target will stay at two percent, But inflation itself, I think the ideal policy would guide inflation to two percent. But assom tote a word that you love, Tom Assum tote to two percent. So you want this gentle reduction inflation right down to two percent. You don't want to you don't want to be bouncing above them below two percent. I think you want this nice glide path into two percent. So hopefully that's what

And so Jim, there are folks out there in academia, in practice, in the marketplace, I think this fit of reserve is already behind the curve that they should have already been cutting. Now, how do you think about that?

So I've argued that earlier this year we did get tremendous reduction and core PC inflation in the second half of twenty twenty three it was four point eight percent. Last summer on a twelve month basis, it came all the way down to two point eight percent. So in this world, in this game, two hundred basis points of inflation reduction over six months or so is fantastically large. So you should be taking that into account. You should

Love to get your opinion on another topic that investors are thinking about, which is this is an election year and what does that mean for the Federal Service to timing. I mean, a lot of folks are saying, you don't want to be too close to the election, so maybe a September might not be the right time.

I think the first of all, I don't think anybody ever won an election based on whether the FED did something at the September meeting, so I don't think it matters for actual election outcomes. I don't think the median voter is voting on that. They're voting on much broader issues. So I think that the committee feels emboldened to do whatever it thinks is right at that meeting or any of the other meetings and the lead up to the election.

When the FED does begin to cut rates, how should we think about the next three, six nine meetings after that? How will they proceed in what may be a prolonged rate reduction move.

How will that procede?

You think I think it'd be slow. I think that you know, at least as up today, you would think that the inflation rate will come down slowly towards two percent. But it would depend on the data and what else is going on, as it always does.

I look at the FED, and I'm going to be honest, Jim Buller, do you have prodigious economic chops. There's a few other people out there as well, But the fact is, on this program we've had more than a few guests take a shot at a central bank that seems to be in love with non economists. Do we need a representation at the governor's level and at the senior levels of the FED that include it's prodigious PhD macroeconomics or can we go with a more generalist approach.

I think it's great to have a mix of voices and a mix of backgrounds on the committee. I think it really helps. You get too many people like me and you get in too much in the weeds about analysis. But if you don't have enough of that, then you know you can't do a good job either, and so a good mix is the right way to go. I've learned a lot from my colleagues that have markets experience, and now there's a couple of new people coming on that have a lot of market.

Jim Bullard was this week continue He's a Purdue of course at Crannerton White. The Mitch Daniels combine out there are they're great graduate and undergraduate programs. Here's the history and you're never going to admit it, but there was a rogue dot dots and you don't know which dot is. You don't know which dot Janet Yellen was, but you knew which dot Bullard was because there was a dot.

If the dots loss their meaning, as you protested with your rogue dot, you could barely fit on the Bloomberg screen.

Tom Secunda is over in Bloomberg LP aging because you ruined the dots screen.

That's yeah, well, it was a different era. You know, we were talking about regimes earlier. It was definitely a situation where interest rates were low around the world. You had negative nominal rates around the world, and I just thought, why don't we just admit that we're in this low nominal interestrate, low inflation regime and project based on that, and not project not try to project that we're going to swing if.

The dots loss are sell by date. I mean, is there any efficacy to the dots now?

I think there could be great reforms on the dot plot, but the committee has just not wanted to make those reforms. One thing that's very strange about the dots is that the horizon shortens up as you go through the year. So now you've got a dot plot that really isn't comparable to the previous dot plots because now you've only got six months left in the year. Was when you started, you had a whole year out in the future.

So I just saw this stuff. I think it's all just yeah, I don't vote, I don't focus on the it's.

A great fun sat Well, I'm trying to explain to my offspring Jim, that about this is a more normalized interest rate environment. This is where most of the time, this society, this economy lives and they're trying to figure out how to borrow for cars and houses and things like that. Is this, in fact where we're going to be for some time? Do you think this kind of No.

I do think we're in this higher interest rate regime, and I do think that it's better on the whole. If you think about the second half of the nineties, which was really the best period for the US economy in the postwar era. That was had interest rates like we have today broadly speaking, and the economy can grow

You're West Lafayette, Indiana. Yes, has a three point zero percent unemployment rate. They're fully employed at Harry's Chocolate Shop.

I mean, there's no question about it.

What does urban America I mean, you and I have talked about this in your offices in Saint Louis years ago. What is urban America missing about the vibrancy of the Midwest.

Of this nation.

I think the Midwest is extremely powerful, very populous. It might not all be in one place like it is here in New York City, but really a lot of people, a lot of great manufacturing, a lot of great businesses spread out across the Midwest and it's a great place to live. And that because you're more spread out, you have better housing markets and better options.

Is there a labor arbitrage still going on right now where I'm sorry, We're gon. We're gonna take the Biden Investment program and that's where we're going to find the jobs because the labor total cost all in it.

There's a lot happening in Indiana. And one thing that's happening is this I sixty five cord or between Lafayette and Indianapolis. If you drive up and down that you'll see lots and lots of businesses locating there. And we just had a deal with South Dekorean chip maker that's going to move to West Lafayette to Purdue in.

Studio where there's the former president of Saint Louis feder Reserve System, James Bullard, he of Indiana University. He have a profoundly important paper I'm guessing twenty.

Sixteen and the regimes that.

We face within our monetary policy. Paul I can report to you at his Purdue at Harry's Chocolate up right at the top of the menu, domestic cans.

They have Budweiser. I know, very important.

Well, Tom, I found another place we're gonna have to go through. This could be a busy time for us there linn Wood Tavern.

Yeah, and Grill. I've heard Rachel's mentioned this.

Though mean exactly three days all mash.

Rivers right there. Still when you do all nighters in mathematics.

That's my kind of place.

He haveing Jim Billard with us, Jim, I got to go to monetary policy or in the measurement of the inflation adjusted yield. As you mentioned, we had negative rates nominally as completely wacko when you were, you know, doing the Saint Louis fat. We're now back to a two percent is ten.

Year real yield. Does that impinge an investment in America?

I think it does, And like we were saying earlier. I think it it makes people think more carefully about their projects, you know what is really going to pay off, and you get probably rid of some of the malinvestment or the misinvestment that might otherwise occur with very cheap money available.

Hey, Jim does to what extent is a FED think about the consumer here, because you think about the American consumer, we probably have two at least two sets of consumers out there. The folks that are maybe you know, do have some assets, whether it's stocks, bonds, real estate doing well, maybe even benefiting from a higher instrain environment. Everybody else who may not have those types of assets or economic support,

Yeah, I think inflation is very pernicious and punishes the lower end of the income distribution very heavily. And you're certainly seeing that and hearing that when you talk to people in surveys, they do not like the inflation at all. They do not like the fact that the price level is up some nineteen percent since twenty twenty one, and they're very upset about that.

One final question, blistering question s K heinins they're going to invest in.

Purdue Research Park.

Yes, the number one thing in the zeitgeist is America doesn't have the employees to be labor in those factories. Are you confident we can develop highly motivated, skilled labor as we perceive in Asia.

No. No, I think we'll have no trouble pulling in the right workforce for the South Korean company, and that'll be a major chip manufacturing facility. We've tried to reshore a lot of our chip making, as you know, across the country, so this is part of that effort.

Jim Buller to future governors of the Federal Reserve System, Constant Hunter and Julia corden Otto.

Are here on your way out, saying hello, you're hugely go Jim Bullard, thank you so much. Greatly appreciated with the Saint Louis Fed