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Speaker 1: This is Bloomberg Surveillance. I see economic data approving the

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Speaker 1: United States. I think that's becoming increasingly obvious, but I

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Speaker 1: still think we're going to be growing into two somewhere.

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Speaker 1: I would recommend that investors stayed defensively, postured and cautious. Policymakers,

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Speaker 1: financial markets, and the economic and financial media looked to

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Speaker 1: the Fed to solve all the problems, and they're not able.

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Speaker 1: To Bloomberg Surveillance your link to the world of economics, finance,

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Speaker 1: and investment on Bloomberg Radio. Hey, good morning, This is

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Speaker 1: Bloomberg Surveillance. I'm Cameron Moscow along with Tom Keene and

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Speaker 1: Michael McKee, and we are just minutes away from an

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Speaker 1: interview as St. Louis Fed President James Bullard. But first,

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Speaker 1: here's the news you need to know at this hour.

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Speaker 1: The dollar on its longest winning streak in a month

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Speaker 1: as speculation builds at the Federal Reserve is moving closer

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Speaker 1: to raising interest rates. That's weighing on gold, oil, and

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Speaker 1: emerging markets. This morning, Credit Strees Group, chief executive officer

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Speaker 1: at John TMS, as the firm's traders had ramped upholdings

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Speaker 1: of distressed debt and other a liquid positions without many

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Speaker 1: senior leaders and knowledge, helping lead to a first quarter

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Speaker 1: loss in the markets business. He's spoke in an interview

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Speaker 1: with Bloomberg Television this morning. U stock index futures are

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Speaker 1: a little change to lower this morning, and we do

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Speaker 1: check the markets every fifteen minutes throughout the trading day.

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Speaker 1: On Bloomberg SNP, EVENI futures are down two points now

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Speaker 1: now EVENI futures down twenty four and nas vak Emni

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Speaker 1: futures down three DAX in Germany up nine tenths percent,

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Speaker 1: the CAT in Paris is up four tenths percent. FT

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Speaker 1: one up a tenth of a percent. In Japan this morning,

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Speaker 1: the n K to twenty five fell three tenths percent.

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Speaker 1: The Hang Sang in Hong Kong was down a quarter percent.

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Speaker 1: Ten Your treasury of three thirty seconds the yield one

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Speaker 1: point nine two percent yield on the two year point

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Speaker 1: eight eight percent. NIMEX screwde oil is down one point

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Speaker 1: eight percent, down seventy six cents. It's at forty sixty

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Speaker 1: nine cents of barrel, while Brent is down nine tenths

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Speaker 1: percent or thirty eight sent It's to forty one dollars

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Speaker 1: forty two cents of barrel comes goal down two point

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Speaker 1: one percent or twenty six dollars fifty cents. At twelve ten,

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Speaker 1: announced the euro a dollar eleven seventy, the yen is

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Speaker 1: at one twelve point eight one, and the British pound

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Speaker 1: this morning at a dollar forty one forty two. Tom

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Speaker 1: and Mike, Welcome to all of our listeners and viewers

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Speaker 1: on Bloomberg Radio, Bloomberg Television, and Bloomberg dot com around

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Speaker 1: the world. We are speaking with James Bullard. He is

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Speaker 1: the president of the St. Louis FED, considered a centrist

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Speaker 1: on the FED and somebody who follows the macro economic

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Speaker 1: developments very closely. A lot going on in the markets

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Speaker 1: these days as investors try to reprice the idea of

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Speaker 1: FED rate cuts a rate increases. You went from a

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Speaker 1: four dot four rate increase move in December GYM to

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Speaker 1: two at your meeting last week, and yet markets pricing

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Speaker 1: still only one. What is going on? If you look

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Speaker 1: at the numbers, Uh, it's your forecast. You should be

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Speaker 1: raising rates already. Uh? Is the dot plot a mistake?

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Speaker 1: Are we confusing people? At this point? Well? I've started

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Speaker 1: to wonder about the efficacy of the dot plot on

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Speaker 1: the policy rate part, because we're, you know, implicitly giving

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Speaker 1: some kind of forward guidance through that through that dot plot,

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Speaker 1: and I'm wondering whether that's a counterproductive at this point.

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Speaker 1: When we were at zero and then we put out

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Speaker 1: a forecast when we were going to come off zero,

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Speaker 1: that was considered forward guidance, and that was considered helpful.

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Speaker 1: But now that you're off zero and you're projecting these

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Speaker 1: these things out into the over the next two years,

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Speaker 1: the pace of increases over the next two years, you're

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Speaker 1: still implicitly giving forward guidance. And I'm not sure that

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Speaker 1: I'm really comfortable giving that kind of forward guidance in

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Speaker 1: this environment. In the past, you look at Greenspan FED

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Speaker 1: or a Jean claud Trish E c B. They never

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Speaker 1: gave any any kind of indication about where rates were

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Speaker 1: going to go, and that I think served a purpose

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Speaker 1: because it kept people focused on what is the data

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Speaker 1: really justifying at this point, and it let market expectations

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Speaker 1: move around as the data came in. But now we've

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Speaker 1: got a dot plot that's, you know, got these kind

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Speaker 1: of lines median lines on it, and I'm not quite sure,

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Speaker 1: that's really what we want to be doing to get

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Speaker 1: rid of it. Well, I thought myself about unilaterally pulling out,

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Speaker 1: and suppose I wouldn't do much good. You still have

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Speaker 1: a lot of dots there. But but I do think

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Speaker 1: this is an important issue. We have to think about

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Speaker 1: what are we really doing with this with this dot plot?

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Speaker 1: And of course financial markets have been uh talking about

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Speaker 1: a lot, and we have our own communications committee that's

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Speaker 1: talked about a lot. I don't tell you about as

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Speaker 1: a question, but let me just quickly ask you which

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Speaker 1: daught are you? How many rate increases do you think?

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Speaker 1: I'm not revealing my dot because I want to get

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Speaker 1: out of the game of uh, you know how many

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Speaker 1: rate increases this year? I wanted to be meeting by meeting,

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Speaker 1: we're going to react to the data and we're gonna

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Speaker 1: take a reasonable policy that will get inflation back to

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Speaker 1: target and they'll keep the economy on a good recovery path.

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Speaker 1: This chart is the St. Louis Cardinals odds of getting

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Speaker 1: to October. The blue line is the Boston Red Side.

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Speaker 1: Jim Boward. I saw a pickup truck one night back

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Speaker 1: up to the Mississippi River and under the arches through

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Speaker 1: your textbooks from the Indiana University into the Mississippi River.

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Speaker 1: Is any of this in your textbooks? Or to be respectful,

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Speaker 1: is it in the textbooks of Mr rosen Grid and

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Speaker 1: Mr Lacker and the others? Uh? No, it's not. Central

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Speaker 1: bankings was turned upside down in two thousand and eight,

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Speaker 1: right about the time I became president of the St.

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Speaker 1: Louis Which human are you speaking from right now? We

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Speaker 1: have a very good research staff, and we work on

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Speaker 1: these questions every day. I think we've got a lot

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Speaker 1: of good ideas and good theories, but it's certainly not

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Speaker 1: the same world we lived in in the nines or

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Speaker 1: the early part of the two thousands. Three of your colleagues,

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Speaker 1: John Williams of San Francisco, Dedislockhart of Atlanta, and last

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Speaker 1: night Patrick Harker of Philadelphia suggested, yes, indeed, we should

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Speaker 1: consider a rate increase in April. Do you think the

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Speaker 1: economy will have developed to the point that April should

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Speaker 1: be considered a live meeting? Would you consider raising rates

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Speaker 1: into April? I think all meetings are live meetings, Cherry

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Speaker 1: Ellen said so, And that's the boiler plate I'm talking about.

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Speaker 1: Based on the Economy. I think they should all be

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Speaker 1: live meetings. I think, uh, it's really hurting us that

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Speaker 1: we've got this kind of alternate meeting thing. I think

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Speaker 1: we should make all meetings ex ante Identic College should

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Speaker 1: have press conferences that every May. I have long been

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Speaker 1: an advocate of this, and that will allow the committee

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Speaker 1: to come into a meeting, assess the data as we

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Speaker 1: should in April and see where we are. The data

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Speaker 1: between December and March was not all that different. It

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Speaker 1: didn't look like we were that far off our path

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Speaker 1: when we got to the March meeting, and so in

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Speaker 1: that sense, I think there was a credible case to

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Speaker 1: be made to move in March. We didn't do it.

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Speaker 1: So now we can look at April and see what

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Speaker 1: the data looks like when we get to table. If

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Speaker 1: the data don't move, then you're saying it would be

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Speaker 1: it would be credible to consider a movie in April

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Speaker 1: while we're basically on the same projected path that we

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Speaker 1: said in December and where maybe a little bit off

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Speaker 1: that you could argue about global risk. You could argue

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Speaker 1: that GENP growth outlook is maybe a little bit lower, maybe,

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Speaker 1: but you get another stronger drives reports looks like labor

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Speaker 1: markets are improving. You can probably make a case for

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Speaker 1: moving in it. Let's talk Rudy dorn Bush and Ken

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Speaker 1: Roll goes great work summarizing what Professor dorn Bush did

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Speaker 1: on the word overshoot. Right now, we see inflation moving higher.

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Speaker 1: We've got course CPI moving up. Mike's mentioned that a

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Speaker 1: number of times. I love the Cleveland seatback. Cleveland is

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Speaker 1: a bank to the east of St. Louis. You may

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Speaker 1: know the Cleveland CPI, not the St. Louis cp I,

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Speaker 1: and they're migrating higher. Can you afford an overshoot in inflation?

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Speaker 1: I think we are going to end up overshooting inflation.

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Speaker 1: We have that as part of our forecast and we

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Speaker 1: have for a while. That is what's going to happen. Uh.

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Speaker 1: And if you look at the Dallas Fed trim mean

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Speaker 1: PC inflation rate ear over here, it's one point nine

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Speaker 1: percent and moving up. So I think all these inflation measures,

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Speaker 1: if you look at them, they're all they're all moving

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Speaker 1: up and uh and we'll probably are going to come

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Speaker 1: over two percent by the time we get into it.

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Speaker 1: Overshooting part of the so called inflation needs this territory

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Speaker 1: or can you find a constructive inflation all Olivia Blanchard's

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Speaker 1: work at the i m F that can help heal

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Speaker 1: nominal GDP can create investments through animal spirit. I don't

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Speaker 1: have any problem with overshooting. I've found the whole discussion

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Speaker 1: about this issue odd. Uh. If you're at one point

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Speaker 1: five percent, you're missing by half a percentage point. If

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Speaker 1: you're at two point one percent, you're missing by one tenth.

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Speaker 1: It's better to be at two point one than one

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Speaker 1: point five. You want to be as close as you

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Speaker 1: can be to your inflation target. But it's a symmetric target.

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Speaker 1: You can be above or below. There's nothing, no problem

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Speaker 1: with that. So I think we are gonna overshoot. I

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Speaker 1: hopefully they'll follow my policy choices and we won't overshoot

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Speaker 1: very much. But I think we all probably overshoot. We

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Speaker 1: are speaking with St. Louis FED President James Bullard. If

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Speaker 1: you overshoot, is inflation low enough that monetary policy can

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Speaker 1: catch up. The argument has always been that inflation can

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Speaker 1: get ahead of the FED and accelerate too quickly. I

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Speaker 1: think the odds that we're going to fall behind the

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Speaker 1: curve are are moving up monestly here. I do think

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Speaker 1: that labor markets are continuing to improve, will be at

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Speaker 1: four point five percent unemployment by the end of the year.

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Speaker 1: All other measures of labor market performance are very strong,

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Speaker 1: so you will get a Phillips curve effect. You've got

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Speaker 1: stabilizing oil prices that's gonna help headline inflation come up.

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Speaker 1: You've got uh, you know, pretty high increases on average

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Speaker 1: in house prices and other things, so in rent. So

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Speaker 1: I think, uh, yeah, yeah, I think we're gonna start

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Speaker 1: you can catch up in words, Yeah, I think I

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Speaker 1: think they're yeah. Falling behind the curve is something that

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Speaker 1: has happened in the past. And uh, central banking, but

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Speaker 1: I think we'll be able to handle a situation this time.

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Speaker 1: Is central is St. Louis the central banker to the world.

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Speaker 1: I mean we've had a shift here with the last

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Speaker 1: press conference. We speak of Cherry Yelling is central banker

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Speaker 1: to the world. But can you state that the collegial

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Speaker 1: group of the f O m C, whether it's Atlanta, Dallas, St. Louis, Boston,

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Speaker 1: you're combined central bankers to the world. Well, the U S.

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Speaker 1: Central Bank is certainly a world leader. We do have

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Speaker 1: a major counterparty and the ECB in Europe. The European

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Speaker 1: economy is a similar size to the US economy. Uh,

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Speaker 1: and you've also got rising China, but China has a

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Speaker 1: different US got Japan, but China has a different economy,

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Speaker 1: not as much capital flow, a managed exchange rate regime,

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Speaker 1: so they've kind of got a different situation there. One

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Speaker 1: thing we didn't get from this month's FED meeting is

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Speaker 1: a sense of what it is that you're looking for

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Speaker 1: as a committee. What's the reaction function? Now? What would

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Speaker 1: make you move if you say, overshooting on inflation is

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Speaker 1: not only okay but expected, and the jobless rates going

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Speaker 1: to go down to four and a half percent? What

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Speaker 1: is it the triggers a move if you haven't moved yet.

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Speaker 1: This is a great question, and this is why you

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Speaker 1: should listen to my speech tomorrow, which is I'm going

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Speaker 1: to talk exactly about this. So we made a projection

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Speaker 1: in December, then we got to March, and if you

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Speaker 1: actually look at the data in March, it wasn't very

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Speaker 1: different from what was projected in December. So why don't

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Speaker 1: we move? We must have been thinking of some other

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Speaker 1: kind of data other than what was in the projections.

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Speaker 1: We cited global risks I've cited inflation expectations, So there

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Speaker 1: are other things entering into the decision other than just

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Speaker 1: the outlook for uh GDP and inflation. Uh. And I

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Speaker 1: think that is causing some confusion maybe among policymakers ourselves,

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Speaker 1: and and maybe among financial market participants. Well, the other

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Speaker 1: thing that wasn't in the statement, the balance of risks?

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Speaker 1: Is that gone? Now where do you see the risks? Uh?

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Speaker 1: I've never liked the balance of risk statement. Frankly, I

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Speaker 1: think uh, uh, you know you're talking about a distribution

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Speaker 1: and uh, it's a hazy object anyway. So that's what

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Speaker 1: monetary policy is. The growth rate is driven by long

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Speaker 1: run factors and technology and human capital. And what the

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Speaker 1: US needs is a better medium term growth strategy. And

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Speaker 1: you need everyone to get on board with that growth strategy.

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Speaker 1: And that's what you need the president that can the

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Speaker 1: next president do that? Or does that come from that?

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Speaker 1: Does it come from a jump condition? Definitely could do that.

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Speaker 1: The implication of this neo Fisherian idea is that the

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Speaker 1: sooner rates rise, maybe the better our rates, our low

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Speaker 1: rates zero close to the zero bound, and kiwi, etcetera.

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Speaker 1: All of your extraordinary policies much of which is still

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Speaker 1: in place, still contributing to growth. Are they still effective?

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Speaker 1: I think they are still accommodative. I think we're providing

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Speaker 1: a very accommodative policy with our zero interest rates and

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Speaker 1: our big balance sheet. But I do think you want

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Speaker 1: to be edging closer and closer to some something of

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Speaker 1: a more normal setting so that you don't get stuck

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Speaker 1: in this zero rate environment the way Japan did. So

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Speaker 1: you want to edge your way toward a more normal

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Speaker 1: uh nominal interest rate structure. I think that would get

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Speaker 1: us back to the kind of equilibrient we had in

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Speaker 1: the eighties and nineties, which is really pretty good, uh

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Speaker 1: good growth economy. Everyone understood what monetary policy was doing,

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Speaker 1: interest rates moved around in the right way to inform

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Speaker 1: that equal right. So that's what we would like to

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Speaker 1: get back to. That. I would suggest we should say

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Speaker 1: that neo Fisherian policy is not the vice chairman of

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Speaker 1: the VET, I think who was who was Irving Fisher?

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Speaker 1: Irving Fisher? I don't think he's really later to why

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Speaker 1: did the economics of irving Fisher my grandfather's age? I'm

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Speaker 1: gonna before shompiter, Actually, why does that work? Now? Yeah? Well,

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Speaker 1: I'll spare all your viewers having to read what he wrote.

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Speaker 1: He's a famous economist, but he wrote one thing, not

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Speaker 1: an interest rate can be divided into a real interest

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Speaker 1: rate and expected inflation. That's all you need to know. That,

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Speaker 1: good professor, you've said, James Bullard from the St. Louis

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Speaker 1: fed is with us. You've said in the past that

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Speaker 1: whatever you think the interest rate should be, given the

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Speaker 1: current economic conditions were not there. So if you're looking

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Speaker 1: to get back to more normal, what would normal be?

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Speaker 1: What would be the appropriate setting for the kind of

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Speaker 1: economy that we have now and that you see over

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Speaker 1: the next year or two. You mean the long run

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Speaker 1: policy rate or well long run of course depends on

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Speaker 1: where you define medium ending in long run ending. But yeah,

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Speaker 1: what is our our star at this point? Um? Our

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Speaker 1: star is this real rate thing? So the short term

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Speaker 1: real rate. People think it has come down a lot.

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Speaker 1: I doubt that it has come down as much as

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Speaker 1: people think. So I still have our star maybe two

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Speaker 1: percent or or higher, uh and moving likely to move

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Speaker 1: higher in the future. If you look at other measures

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Speaker 1: that we've got bogged posting stuff on this, I think

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Speaker 1: the way to think about this is this does not

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Speaker 1: move a lot over over the short term. It moves

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Speaker 1: slowly over time. And uh, the idea that it's way

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Speaker 1: down at zero or at a very low value, I

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Speaker 1: don't think. I don't buy that. One of the things

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Speaker 1: that's bothered me Jim recently, Mike and I we literally

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Speaker 1: have a gong in our radio studio when people say this,

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Speaker 1: the humanize the market. The market vigilantes are going out,

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Speaker 1: They're gonna get Janet Yell and they never want to

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Speaker 1: get Jim moved. It drives me absolutely insane. Bring up

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Speaker 1: the dot chart again, Rachel, if you would. And the

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Speaker 1: basic idea here, folks, is the blue line is wrong,

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Speaker 1: and somehow that blue line is gonna migrate higher and

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Speaker 1: join Jim Bullard's estimates. You, with all your work, have

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Speaker 1: a great respect for where that blue line is the market.

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Speaker 1: Do you assume that it's going to just stay where

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Speaker 1: it is and you're going to catch up for those

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Speaker 1: good radio that We've talked about this many times before,

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Speaker 1: and this is not a good situation to have, and

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Speaker 1: we've had it for a couple of years now, where

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Speaker 1: the market has been pricing in something more devilish. Really,

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Speaker 1: if you look at that line more devilish than all

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Speaker 1: the dots out there, in so more devish than the

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Speaker 1: most devish committee member. So that is a huge gap.

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Speaker 1: It's a huge gap. That's the headline that will that

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Speaker 1: will have to get reconciled. I've been worried that it

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Speaker 1: will get reconciled in a violent way. I hope that

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Speaker 1: doesn't happen and cause a lot of a lot of

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Speaker 1: turmoil financial markets. But um, I think what will happen

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Speaker 1: is that as inflation starts to come up and we

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Speaker 1: get more credibility that really it is going back to

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Speaker 1: two percent, and in my view even going over two percent,

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Speaker 1: then I think that that blue line will start to

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Speaker 1: come back up. That what's feeding into that blue line

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Speaker 1: is a lot of ideas about central banks can't control inflations,

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Speaker 1: FED won't be able to get back to two percent,

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Speaker 1: that inflation will be permanently low, those kinds of ideas,

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Speaker 1: and I think those will go away as inflation rises.

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Speaker 1: Here during we're talking with James Bullard of the St.

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Speaker 1: Louis FED about the dots you could see now the

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Speaker 1: Blueberg terminal dots go and how the FEDS forecast for

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Speaker 1: interest rates. If you read it into the dot chart

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Speaker 1: is much higher, the blue line being the market expectations

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Speaker 1: that we're talking about, which leads me to this. Your

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Speaker 1: former colleague from the Minneapolis Fed, Naryana coachro of Dakota,

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Speaker 1: writing for Bloomberg View yesterday, suggested the Fed has a

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Speaker 1: credibility problem. Promises to be gradual might have to be

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Speaker 1: jettisoned if inflation picks up, as you suggested, will promises

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Speaker 1: to raise rates might have to be dropped if the

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Speaker 1: economy slows. Here's what he wrote, Officials must recognize that

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Speaker 1: their expectations for the economy, like all forecasts, are likely

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Speaker 1: to prove raw. As a result, they should be much

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Speaker 1: clearer about their willingness to make large and rapid changes

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Speaker 1: in monetary policy. Would you agree? Yeah, I mean, I

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Speaker 1: know Mariana very well. We talk a lot, so. Uh.

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Speaker 1: The the keyword there's promises. Keyword there is promises is

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Speaker 1: the SEP, the meeting SEP some kind of projection. Is

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Speaker 1: that some kind of promise about what's going to happen?

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Speaker 1: And Cherry Ellen says absolutely not, absolutely not. It's a

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Speaker 1: conditional thing that depends on how the economy develops. But

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Speaker 1: I think it could be misinterpreted as a some kind

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Speaker 1: of promise or some kind of forward guidance. That's why

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Speaker 1: I'm getting increasingly concerned about what are we doing with

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Speaker 1: these UH, with these UH policy projections, and is it

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Speaker 1: really having the effect that we, you know, intended to

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Speaker 1: have where it's just kind of gentle guidance about what

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Speaker 1: might happen in the future, as opposed to a commitment

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Speaker 1: to how the how the federal behaving the future. The

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Speaker 1: community has not wanted to be a commitment, certainly not

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Speaker 1: at this juncture. And UH. Nevertheless, you could see why

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Speaker 1: markets might interpret it that way. So he's saying we've

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Speaker 1: got to be better about showing how stay continued we

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Speaker 1: can be and that we will move around with the data.

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Speaker 1: Only about thirty seconds left, But I gotta quickly ask

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Speaker 1: you about the latter half of Mr. Coachlacota's statement that

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Speaker 1: the idea that we might see the economy slow significantly

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Speaker 1: in the FED have to react, what are the odds

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Speaker 1: of that? That's certainly not a base case. You can

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Speaker 1: always get hit by a big shock and something bad

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Speaker 1: can happen. That's the world we live in, and maybe

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Speaker 1: that will happen. But but that's not the base case.

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Speaker 1: I think we'll get slow but good growth in James

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Speaker 1: Bullard from the St. Louis Fit, thank you very much

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Speaker 1: for joining us, maybe suggesting getting rid of the dot plot. Uh,

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Speaker 1: and the interest rates are gonna have to rise if

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Speaker 1: inflation rises and growth continues to improve. Always great to

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Speaker 1: see you guys, to thank you. We did get to

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Speaker 1: ask you about Cardinals Cubs. I presume right, oh, all right,

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Speaker 1: thank you. This is Bloomberg Radio and Bloomberg Television and

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Speaker 1: Bloomberg dot Com on Wall Street and you're listening to

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Speaker 1: Bloomberg Surveillance. Still ahead, We'll talk to David. William Burson

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Speaker 1: signifies President chief Economists that they should want to the

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Speaker 1: insurance SMB futures six points lower