1 00:00:00,120 --> 00:00:03,440 Speaker 1: Now in conversation with James Buller, the former Saint Louis 2 00:00:03,440 --> 00:00:06,600 Speaker 1: FED President. R. Michael McKee, Well, thank you all very much, 3 00:00:06,640 --> 00:00:08,360 Speaker 1: and we'd like to thank Jim Buller for coming in 4 00:00:08,400 --> 00:00:11,400 Speaker 1: and joining us today. I would have called you mister President, 5 00:00:11,440 --> 00:00:13,399 Speaker 1: but now what do we call you? Dean Bullard? 6 00:00:13,440 --> 00:00:14,720 Speaker 2: I guess you can call me Jim. 7 00:00:15,840 --> 00:00:18,880 Speaker 1: Well, Jim is the dean of the Daniels School of 8 00:00:18,920 --> 00:00:22,319 Speaker 1: Business now at Purdue University, and we thank you for 9 00:00:22,440 --> 00:00:26,239 Speaker 1: joining us today. I want to start with the dot plot. 10 00:00:26,239 --> 00:00:28,360 Speaker 1: I think we have a picture of the dot plot 11 00:00:28,360 --> 00:00:31,440 Speaker 1: that we can put up for those of you on radio. 12 00:00:31,480 --> 00:00:34,840 Speaker 1: You can look up the dot plot on the fed's website. 13 00:00:34,840 --> 00:00:38,319 Speaker 1: But basically, in June, the last time we put out 14 00:00:38,320 --> 00:00:41,879 Speaker 1: a forecast, there was one lonely dot way at the 15 00:00:41,920 --> 00:00:46,559 Speaker 1: top saying six and a quarter percent. You left that 16 00:00:46,680 --> 00:00:51,720 Speaker 1: dot's gone. How would you have voted if you were 17 00:00:51,800 --> 00:00:53,880 Speaker 1: if you were there yesterday. 18 00:00:54,400 --> 00:00:56,560 Speaker 2: I thought this was a pretty good decision on the 19 00:00:56,600 --> 00:00:57,880 Speaker 2: part of the FED. 20 00:00:57,960 --> 00:00:58,160 Speaker 3: Here. 21 00:00:58,400 --> 00:01:02,960 Speaker 2: The higher for longer message, I think is consistent with 22 00:01:04,240 --> 00:01:08,960 Speaker 2: the rhetoric we've been hearing from the committee Earlier this year. 23 00:01:09,040 --> 00:01:12,200 Speaker 2: There was widespread prediction that there would be a recession, 24 00:01:12,240 --> 00:01:15,120 Speaker 2: and in the second half of twenty twenty three that 25 00:01:15,200 --> 00:01:19,319 Speaker 2: recession isn't materializing. So to the extent you thought that 26 00:01:19,640 --> 00:01:25,760 Speaker 2: a recession would produce extra downward pressure on inflation that 27 00:01:25,840 --> 00:01:28,000 Speaker 2: had to be taken back out, so you you ended 28 00:01:28,080 --> 00:01:30,640 Speaker 2: up with a higher for longer message here. I think 29 00:01:30,680 --> 00:01:32,399 Speaker 2: that makes a lot of sense, So. 30 00:01:32,360 --> 00:01:34,800 Speaker 1: We don't need higher rates at this point. 31 00:01:36,280 --> 00:01:40,680 Speaker 2: Well, the Committee left the additional rate hike this year 32 00:01:40,840 --> 00:01:44,959 Speaker 2: in the dot plot. I think that may be a 33 00:01:45,000 --> 00:01:48,160 Speaker 2: good thing to do as insurance to make sure that 34 00:01:48,240 --> 00:01:52,640 Speaker 2: core inflation, especially continues to come down at an appropriate 35 00:01:52,680 --> 00:01:54,880 Speaker 2: pace so that the Committee can get back to two 36 00:01:54,880 --> 00:01:59,360 Speaker 2: percent inflation and a reasonable timeframe. I think the risks 37 00:01:59,400 --> 00:02:03,800 Speaker 2: are building that inflation could hang up at a higher 38 00:02:03,880 --> 00:02:07,400 Speaker 2: level or even go higher based on the idea of 39 00:02:07,440 --> 00:02:11,960 Speaker 2: a reacceleration in the US economy, so you have to 40 00:02:12,000 --> 00:02:15,600 Speaker 2: take account of that probability when you're making policy. I 41 00:02:15,600 --> 00:02:17,000 Speaker 2: think the Committee has done that here. 42 00:02:17,280 --> 00:02:21,000 Speaker 1: Well. One of the interesting questions is about the forecast. 43 00:02:21,840 --> 00:02:24,959 Speaker 1: John was just talking about it. You've got the Fed 44 00:02:25,040 --> 00:02:29,200 Speaker 1: saying their growth forecast has doubled, their unemployment forecast has 45 00:02:29,240 --> 00:02:33,720 Speaker 1: been cut significantly, and yet they're also predicting that PCEE 46 00:02:33,880 --> 00:02:37,760 Speaker 1: core inflation is going to go down. How does that work? 47 00:02:38,560 --> 00:02:43,600 Speaker 2: Well, I think you will get disinflation with you. That's 48 00:02:43,639 --> 00:02:46,760 Speaker 2: the base case. The question is how fast will that 49 00:02:46,840 --> 00:02:51,680 Speaker 2: disinflation occur. If it's a very slow disinflation, you're going 50 00:02:51,760 --> 00:02:54,560 Speaker 2: to want to keep policy rate higher in order to 51 00:02:54,600 --> 00:02:56,600 Speaker 2: put more pressure on so you get back to two 52 00:02:56,600 --> 00:03:00,280 Speaker 2: percent sooner. And there's a little bit of probability that 53 00:03:00,320 --> 00:03:03,640 Speaker 2: inflation would just stall up completely at the current levels, 54 00:03:03,639 --> 00:03:08,440 Speaker 2: which would be unacceptable. It's you know, core inflation has 55 00:03:08,480 --> 00:03:10,800 Speaker 2: a handle depending on how you measure it. You know, 56 00:03:10,880 --> 00:03:14,480 Speaker 2: in the four range is still double or more than 57 00:03:14,520 --> 00:03:18,360 Speaker 2: double the FEDS target. So you've got a long ways 58 00:03:18,440 --> 00:03:21,360 Speaker 2: to go here, and I think you want insurance on 59 00:03:21,440 --> 00:03:24,480 Speaker 2: the side of making sure that you get back to 60 00:03:24,520 --> 00:03:26,880 Speaker 2: two percent inflation. On the real side of the economy, 61 00:03:26,919 --> 00:03:31,280 Speaker 2: things look pretty good. You've got some reacceleration the third 62 00:03:31,360 --> 00:03:34,720 Speaker 2: quarter here it looks like we've talked about it before, 63 00:03:34,880 --> 00:03:38,840 Speaker 2: and unemployment still with the three handle looking very good. J. 64 00:03:39,000 --> 00:03:40,880 Speaker 1: Powell wouldn't say the words, but it looks like the 65 00:03:40,920 --> 00:03:42,800 Speaker 1: forecast is saying soft landing. 66 00:03:44,000 --> 00:03:46,720 Speaker 2: Yeah. I think the prospects for soft landing are very good. 67 00:03:47,920 --> 00:03:50,400 Speaker 2: But you haven't landed until you get inflation back to 68 00:03:50,440 --> 00:03:52,920 Speaker 2: two percent. So you're only part way through this process, 69 00:03:53,680 --> 00:03:55,240 Speaker 2: but prospects are looking good. 70 00:03:55,600 --> 00:03:59,800 Speaker 1: If that's the case, then the question becomes higher for longer? 71 00:04:00,480 --> 00:04:04,480 Speaker 1: How much longer? The FED took away fifty basis points 72 00:04:04,480 --> 00:04:07,360 Speaker 1: of cuts from their forecast for next year, But how 73 00:04:07,440 --> 00:04:11,000 Speaker 1: long do you think you need to lean against inflation 74 00:04:11,320 --> 00:04:12,400 Speaker 1: to have an effect. 75 00:04:13,960 --> 00:04:16,360 Speaker 2: Well, it'll be data dependent on that, but I think 76 00:04:16,400 --> 00:04:20,159 Speaker 2: this idea that you'd have five percent policy rate or 77 00:04:20,240 --> 00:04:24,640 Speaker 2: higher over the next eighteen months or so, I think 78 00:04:24,720 --> 00:04:29,279 Speaker 2: that's significant and shows you resolve on the part of 79 00:04:30,720 --> 00:04:32,960 Speaker 2: Chair Powell and the rest of the committee to get 80 00:04:33,000 --> 00:04:36,320 Speaker 2: inflation lower. So that's quite a while. I think once 81 00:04:36,360 --> 00:04:39,000 Speaker 2: you get out beyond that the end of twenty four, 82 00:04:39,040 --> 00:04:41,760 Speaker 2: you get into twenty twenty five. Nobody knows at this point. 83 00:04:41,920 --> 00:04:46,400 Speaker 1: Well, that raises the question of lags and how long 84 00:04:46,560 --> 00:04:50,600 Speaker 1: the lags might be if he takes eighteen months to 85 00:04:50,720 --> 00:04:51,400 Speaker 1: bring it down. 86 00:04:53,080 --> 00:04:55,440 Speaker 2: Yeah, I don't know. I haven't liked the long and 87 00:04:55,520 --> 00:04:59,240 Speaker 2: variable lags story for the modern era as much. I 88 00:04:59,279 --> 00:05:02,960 Speaker 2: think a lot of the transmissional monetary policy occurs pretty 89 00:05:03,040 --> 00:05:06,560 Speaker 2: rapidly through financial markets in a way that was not 90 00:05:06,720 --> 00:05:10,040 Speaker 2: the case in the nineteen sixties and fifties, that when 91 00:05:10,360 --> 00:05:13,359 Speaker 2: Friedman was talking about long and variable legs. So I 92 00:05:13,440 --> 00:05:19,240 Speaker 2: think I think the economy has changed. Information moves much faster, 93 00:05:19,640 --> 00:05:22,120 Speaker 2: decisions are made, much faster than they would have been 94 00:05:23,520 --> 00:05:25,960 Speaker 2: in the world's more forward looking than they would have. 95 00:05:25,920 --> 00:05:26,400 Speaker 1: Been in. 96 00:05:28,040 --> 00:05:34,200 Speaker 2: The sixties and fifties. So I think you should look 97 00:05:34,200 --> 00:05:37,960 Speaker 2: for impact today, or more impact today than you would 98 00:05:38,000 --> 00:05:42,440 Speaker 2: have in that earlier era. And so by keeping the 99 00:05:42,440 --> 00:05:44,680 Speaker 2: policy rate high right now, I think you can get 100 00:05:44,800 --> 00:05:49,280 Speaker 2: disinflation happen now, it's not really so much two years 101 00:05:49,279 --> 00:05:49,600 Speaker 2: from now. 102 00:05:49,960 --> 00:05:52,360 Speaker 1: Well, what kind of economy will we have Two years 103 00:05:52,400 --> 00:05:54,920 Speaker 1: from now, we get the pandemic distortions in the economy 104 00:05:54,960 --> 00:05:57,880 Speaker 1: out supply and demand maybe come back into better balance. 105 00:05:57,920 --> 00:06:00,760 Speaker 1: But do we have a new of me do we 106 00:06:00,839 --> 00:06:03,760 Speaker 1: have an old economy? Where do you think neutral is 107 00:06:04,520 --> 00:06:08,560 Speaker 1: We're going back into a rate regime that is higher 108 00:06:08,839 --> 00:06:10,960 Speaker 1: than we were used to in the two thousands. 109 00:06:12,240 --> 00:06:15,479 Speaker 2: Yeah, I think we've talked about it before. But one 110 00:06:15,520 --> 00:06:18,640 Speaker 2: of the historical examples that you want to look at 111 00:06:18,720 --> 00:06:22,240 Speaker 2: here is the nineteen ninety four tightening cycle, which was 112 00:06:22,279 --> 00:06:26,919 Speaker 2: not as big as this one, but set up the 113 00:06:27,080 --> 00:06:30,560 Speaker 2: US economy for a stellar second half of the nineteen nineties, 114 00:06:30,560 --> 00:06:34,479 Speaker 2: one of the best periods in US macroeconomic history. So 115 00:06:34,520 --> 00:06:36,839 Speaker 2: if you can get inflation to continue to come down 116 00:06:36,960 --> 00:06:40,279 Speaker 2: here with a pretty strong economy, you could set the 117 00:06:40,320 --> 00:06:43,839 Speaker 2: economy up for a productivity boom and a very strong 118 00:06:43,880 --> 00:06:48,440 Speaker 2: period in the twenty twenties here. So hopefully that's what 119 00:06:48,520 --> 00:06:50,720 Speaker 2: will happen. I think we're only part way through that 120 00:06:50,800 --> 00:06:53,400 Speaker 2: process at this point. But if you really do get 121 00:06:53,440 --> 00:06:55,680 Speaker 2: a soft landing, then you could look at a period 122 00:06:55,839 --> 00:07:01,680 Speaker 2: of good growth, strong labor market, high productivity growth. So 123 00:07:02,960 --> 00:07:06,039 Speaker 2: I'm not saying that that's definitely going to happen, but 124 00:07:06,080 --> 00:07:07,800 Speaker 2: that's certainly one of the possibilities. 125 00:07:08,040 --> 00:07:12,320 Speaker 1: What happens We'll have only about one question left here, 126 00:07:12,360 --> 00:07:16,200 Speaker 1: but what happens with the labor market going forward? Are 127 00:07:16,240 --> 00:07:20,160 Speaker 1: we going to see ongoing wage pressures because they're just 128 00:07:20,200 --> 00:07:22,840 Speaker 1: aren't enough people to fill the jobs out there? 129 00:07:23,360 --> 00:07:26,480 Speaker 2: Yeah, I think the labor supply is somewhat diminished from 130 00:07:26,520 --> 00:07:30,400 Speaker 2: where it would have been a pre pandemic or earlier. 131 00:07:31,120 --> 00:07:33,760 Speaker 2: I think you have older workers less willing to come 132 00:07:33,800 --> 00:07:36,240 Speaker 2: back into the workforce, so they're kind of a marginal 133 00:07:37,720 --> 00:07:41,320 Speaker 2: worker type and they're not coming in as much. Their 134 00:07:41,520 --> 00:07:46,800 Speaker 2: nest eggs are pretty pretty robust here with high housing 135 00:07:46,840 --> 00:07:53,360 Speaker 2: prices and relatively high equity prices. So I also think 136 00:07:56,200 --> 00:08:00,480 Speaker 2: daycare has been kind of decimated by the pandem So 137 00:08:00,520 --> 00:08:05,280 Speaker 2: this has changed arrangements for parents with young children. And 138 00:08:05,360 --> 00:08:08,320 Speaker 2: so you just have a subdued labor supply compared to 139 00:08:08,360 --> 00:08:11,280 Speaker 2: what you would have had pre pandemic, and this is 140 00:08:11,360 --> 00:08:15,280 Speaker 2: leading to continued tightness in the labor market. 141 00:08:15,680 --> 00:08:17,320 Speaker 1: Well, we thank you for coming in. We're going to 142 00:08:17,400 --> 00:08:20,280 Speaker 1: send you back now todue to graduate some more engineers 143 00:08:20,320 --> 00:08:23,800 Speaker 1: so we can fill those empty labor slots. Jim Bullard, 144 00:08:24,040 --> 00:08:26,760 Speaker 1: thank thank you for joining us today. We'll send it 145 00:08:26,800 --> 00:08:28,480 Speaker 1: back to you in London. 146 00:08:29,640 --> 00:08:31,480 Speaker 3: He Mike, can you just squeeze one extra question and 147 00:08:31,560 --> 00:08:33,440 Speaker 3: can you ask Jim if there's no value in the 148 00:08:33,480 --> 00:08:36,200 Speaker 3: full cost, why they still producing them after that performance 149 00:08:36,200 --> 00:08:38,840 Speaker 3: from Sham and Pow yesterday. Can you ask him quickly, Mike. 150 00:08:39,720 --> 00:08:43,199 Speaker 1: Sure, John is asking if there's no value in the forecast, 151 00:08:43,240 --> 00:08:44,880 Speaker 1: then why do they keep producing them? 152 00:08:46,280 --> 00:08:51,640 Speaker 2: Well, it's what we do. I think you know, forecasts 153 00:08:51,640 --> 00:08:53,920 Speaker 2: are useful, but only up to a point, there's a 154 00:08:53,920 --> 00:08:56,400 Speaker 2: certain amount of ambient noise in the economy. You can't 155 00:08:56,440 --> 00:09:00,600 Speaker 2: get away from that, so you you know, you can't 156 00:09:00,640 --> 00:09:02,240 Speaker 2: live with them and you can't live without them. I 157 00:09:02,240 --> 00:09:03,480 Speaker 2: guess this is the way you would say that. 158 00:09:04,320 --> 00:09:06,720 Speaker 1: Thank you very much, John, I hope that answers your question. 159 00:09:06,800 --> 00:09:10,520 Speaker 3: Thanks Mike, just about Mike, appreciate it, buddy. Fantastic work, 160 00:09:10,600 --> 00:09:12,360 Speaker 3: just one of the best as always, and brilliant performance 161 00:09:12,360 --> 00:09:14,120 Speaker 3: in the news conference from Mike mc key yesterday as 162 00:09:14,160 --> 00:09:16,520 Speaker 3: well sitting down with the former Send Lewis FED President 163 00:09:16,920 --> 00:09:17,560 Speaker 3: Jim Billard.