WEBVTT - Former St Louis Fed President Jim Bullard Talks Warsh's Nomination Process

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's turn to the Federal Reserve. The Republican Senator Tom

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<v Speaker 2>tillis praising FED shair nominee Kevin Walsh following their meeting yesterday,

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<v Speaker 2>but not wavering on his promise to block any FED

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<v Speaker 2>nominations until the criminal pro into the current chair. Jpew

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<v Speaker 2>ends the former sen Lewis. FED President Jim Pillot joins us.

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<v Speaker 2>Now for more, Jim, welcome to the program. Set the stage.

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<v Speaker 2>How difficult a moment is this for an incoming FED chair?

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<v Speaker 1>Yeah, so you've got to get through the nomination process first.

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<v Speaker 1>And as I as I understand it, anyway, I don't

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<v Speaker 1>think anything's going to happen. So nobody is going to

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<v Speaker 1>be on the FED board anytime soon. The way this

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<v Speaker 1>is going, the administration will have to come to some

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<v Speaker 1>kind of deal. They don't seem to be talking about that.

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<v Speaker 1>So I think it's stalled for now.

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<v Speaker 2>It's the second time we've had to deal with this. Jim.

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<v Speaker 2>Before it was largely in the President's hands, and for

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<v Speaker 2>whatever reason, Biden's stored, he stolled, he stored, and waited

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<v Speaker 2>a long long time to reselect renominate chair pau for

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<v Speaker 2>a second term and some people, even people who were

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<v Speaker 2>on the committee at the time. So that's what stopped

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<v Speaker 2>this feder reserve from hiking quickly enough to respond to

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<v Speaker 2>the energy crisis and the inflation pandemic shock coming out

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<v Speaker 2>of the pandemic. Now, Jim, I just wondered this time

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<v Speaker 2>around how critical this moment actually is with a frenchile

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<v Speaker 2>labor market and pressure once again on inflation coming from energy.

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<v Speaker 1>Well, it always critical, always lots of lots of interesting

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<v Speaker 1>things going on, I would say about this shock.

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<v Speaker 3>It's not like the seventies.

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<v Speaker 1>I mean, this is of course this is going to

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<v Speaker 1>bring up you know, hearkening back to the seventies. But

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<v Speaker 1>the US is a leading oil producer today who weren't

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<v Speaker 1>at that time. So I think the recession threat from

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<v Speaker 1>this shock is probably smaller than it would have otherwise

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<v Speaker 1>been because you've got the supply side kind of offsetting

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<v Speaker 1>demand destruction that could occur, so I think. And then

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<v Speaker 1>on the inflation side, well, you know, the FED looks

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<v Speaker 1>through or presce shocks anyway, they look at core inflation.

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<v Speaker 1>So there's only a small effect on core inflation from this.

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<v Speaker 1>So it's really whether inflation expectations would start to rise

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<v Speaker 1>because markets would start to think that the FED was

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<v Speaker 1>going to accommodate this shock, which is what happened in

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<v Speaker 1>the seventies. I don't think that committee's in much of

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<v Speaker 1>a mood to do that. So I think it's a

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<v Speaker 1>different situation. Even though this is a really big shock,

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<v Speaker 1>it's a different situation than what we saw earlier in

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<v Speaker 1>the postwar era.

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<v Speaker 4>Jim, what gives you confidence that there's enough momentum in

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<v Speaker 4>the underlying economy to make this not an issue of

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<v Speaker 4>demand destruction, not an issue of the consumer increasingly crimped.

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<v Speaker 1>Yeah, I just think, you know, the shock would hit

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<v Speaker 1>the US economy and that would be you know, prices

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<v Speaker 1>are certainly something that we all pay every day, so

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<v Speaker 1>that has acted like a tax in the past.

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<v Speaker 3>But you've also got a.

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<v Speaker 1>Supply side, you know, being the world's leading oil producer,

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<v Speaker 1>which is offsetting some of that. I would also say

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<v Speaker 1>that we've you know, we've seen actually higher oil prices

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<v Speaker 1>in the past. If I recall collect correctly in two

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<v Speaker 1>thousand and eight, and in real terms, that would be

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<v Speaker 1>over two hundred dollars a barrel.

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<v Speaker 3>So that's a very different scenario.

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<v Speaker 1>Markets are right to focus on, well, how long would

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<v Speaker 1>this conflict continue to go on?

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<v Speaker 3>You know, US could withdraw at.

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<v Speaker 1>Any point saying it's declare victory and withdrawal.

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<v Speaker 3>So we'll see, We'll see what happens here.

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<v Speaker 4>We see Jim expectations over at the ECB as well

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<v Speaker 4>as the Bank of England for a potential rate hike

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<v Speaker 4>increasingly priced and in response to higher oil prices. Do

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<v Speaker 4>you think that people will start thinking about the same

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<v Speaker 4>here in the US.

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<v Speaker 3>I don't know if they go that far. I think

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<v Speaker 3>more would have to happen before they go that far.

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<v Speaker 1>I think the more likely scenarios that they just stay

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<v Speaker 1>on hold longer than they otherwise would have in order

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<v Speaker 1>to send a signal that they want to keep inflation

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<v Speaker 1>under control. But again, it's the inflation expectations probably that

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<v Speaker 1>matter more.

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<v Speaker 3>Than the oil price movements directly.

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<v Speaker 5>Well, we already see airlines across Europe and Asia increasing fares.

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<v Speaker 5>They're raising the fuel surcharges given what's going on in

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<v Speaker 5>the war. Also in America, we are farmed to table society.

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<v Speaker 5>All of our food comes because of petrol and gasoline

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<v Speaker 5>on trucks. Isn't that going to be a problem for

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<v Speaker 5>this Federal Reserve, not just the fact that gasoline prices

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<v Speaker 5>this morning are closer to four dollars a gallon than three.

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<v Speaker 1>Yeah, I mean it's going to be a problem for

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<v Speaker 1>headline inflation. But you know, the Committee looks at core inflation.

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<v Speaker 1>The whole point of that is to say that they're

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<v Speaker 1>not going to react to movements in food and energy

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<v Speaker 1>prices that can be pretty transitory and have historically been

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<v Speaker 1>pretty transitory, so that what they want is the underlying

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<v Speaker 1>trend in inflation. And you could look at core PC inflation,

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<v Speaker 1>which the Committee likes, or Dallas Fed trim med inflation,

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<v Speaker 1>which throws out some of the high and low price

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<v Speaker 1>changes that occur in that price change distribution.

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<v Speaker 3>So sure, yeah, people are really paying these things.

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<v Speaker 1>It really does matter, Yes, But when you're trying to

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<v Speaker 1>make policy for the medium term, you've got to look through.

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<v Speaker 3>Some of it.

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<v Speaker 2>Hi, Jim, it's going to say, always try to catch up.

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<v Speaker 2>Jim Blad, the former Saint Louis FED president. The takeaway

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<v Speaker 2>there not much to say here, seems to be the

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<v Speaker 2>view of one FED official. One former FED official,