WEBVTT - Jim Bullard  Talks Monetary Policy

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

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<v Speaker 2>We got so much to talk about with James Bullard.

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<v Speaker 2>Of course, original is Saint Louis Fed with all the

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<v Speaker 2>research heritage of the Saint Louis Fed his PhD from

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<v Speaker 2>Indiana University, and he's wearing a boiler up Purdue pin

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<v Speaker 2>today with this wonderful challenge that's taking on. What's the

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<v Speaker 2>difference between I you in Purdue.

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<v Speaker 3>Purdue is number four engineering school in the country. So

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<v Speaker 3>it's MIT Stanford.

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<v Speaker 4>Berkeley out in the Midwest.

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<v Speaker 3>Yeah, and so the medical school is down at IU,

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<v Speaker 3>but engineering is at Produce. So it's a great technical

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<v Speaker 3>university and the business school is aiming to combine even

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<v Speaker 3>better than we have with the engineering school and get

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<v Speaker 3>great graduates school.

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<v Speaker 4>You're enjoying the private life.

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<v Speaker 3>Oh I am, and it's it's going very well. Well.

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<v Speaker 3>It's great to be back on campus and around the

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<v Speaker 3>students and hanging out.

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<v Speaker 2>I want to go back to I believe it was

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<v Speaker 2>twenty sixteen and doctor Bullard, you had a profoundly important

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<v Speaker 2>paper saying, as Leguard is saying at the ECB, we

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<v Speaker 2>got to get off this idiot media micro analysis of

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<v Speaker 2>data and look at the regimes that we live in

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<v Speaker 2>as we go to this FED meeting today, within disinflation,

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<v Speaker 2>with the FED, with the ECB leading, and of the

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<v Speaker 2>rate cut for Jim Bullard, Is there a new regime

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<v Speaker 2>out there right now post pandemic.

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<v Speaker 3>I do think we've switched regimes. We're in a higher

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<v Speaker 3>nominal interest rate, higher inflation environment, and I think that

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<v Speaker 3>means that comparisons should be made more to the second

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<v Speaker 3>half of the nineteen nineties in the first part of

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<v Speaker 3>the two thousands than to the twenty nine to twenty

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<v Speaker 3>nineteen period, which was a low nominally straight low inflation regime.

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<v Speaker 2>Paul wants to get here. We're going to tie the

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<v Speaker 2>bow here if I can. It's critical. Is this the

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<v Speaker 2>press conference where we get some form of hint or

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<v Speaker 2>statement to where Bullard and Clarida are, which is away

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<v Speaker 2>from the slavery.

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<v Speaker 4>Of two point zero percent? Uh?

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<v Speaker 2>Do we get a higher an understanding of a higher

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<v Speaker 2>run rate for our start or for inflation?

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<v Speaker 3>Uh? Inflation, No, the inflation target will stay at two percent,

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<v Speaker 3>But inflation itself, I think the ideal policy would guide

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<v Speaker 3>inflation to two percent. But assom tote a word that

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<v Speaker 3>you love, Tom Assum tote to two percent. So you

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<v Speaker 3>want this gentle reduction inflation right down to two percent.

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<v Speaker 3>You don't want to you don't want to be bouncing

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<v Speaker 3>above them below two percent. I think you want this

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<v Speaker 3>nice glide path into two percent. So hopefully that's what

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<v Speaker 3>we'll get here. And this, this report today is very encouraging.

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<v Speaker 1>And so Jim, there are folks out there in academia,

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<v Speaker 1>in practice, in the marketplace, I think this fit of

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<v Speaker 1>reserve is already behind the curve that they should have

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<v Speaker 1>already been cutting. Now, how do you think about that?

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<v Speaker 3>So I've argued that earlier this year we did get

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<v Speaker 3>tremendous reduction and core PC inflation in the second half

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<v Speaker 3>of twenty twenty three it was four point eight percent.

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<v Speaker 3>Last summer on a twelve month basis, it came all

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<v Speaker 3>the way down to two point eight percent. So in

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<v Speaker 3>this world, in this game, two hundred basis points of

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<v Speaker 3>inflation reduction over six months or so is fantastically large.

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<v Speaker 3>So you should be taking that into account. You should

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<v Speaker 3>be reducing the policy rate. But the committee just couldn't

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<v Speaker 3>find the right moment to do that because all the

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<v Speaker 3>inflation reports up to now were mixed or even even negative,

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<v Speaker 3>so unfortunately didn't find the right moment to do that.

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<v Speaker 3>But this idea that the policy rate is a little

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<v Speaker 3>too high for where the economy is today, I think

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<v Speaker 3>makes a lot of sense. So I've advocated for like

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<v Speaker 3>a technical adjustment. You know, you want to get this

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<v Speaker 3>idea across that, because inflation isn't near five percent anymore.

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<v Speaker 3>Core inflation, it's now under three percent, we can afford

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<v Speaker 3>to reduce the policy rate, still be restrictive and get

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<v Speaker 3>this glide path into the two percent target.

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<v Speaker 1>Love to get your opinion on another topic that investors

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<v Speaker 1>are thinking about, which is this is an election year

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<v Speaker 1>and what does that mean for the Federal Service to timing.

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<v Speaker 1>I mean, a lot of folks are saying, you don't

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<v Speaker 1>want to be too close to the election, so maybe

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<v Speaker 1>a September might not be the right time.

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<v Speaker 3>I think the first of all, I don't think anybody

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<v Speaker 3>ever won an election based on whether the FED did

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<v Speaker 3>something at the September meeting, so I don't think it

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<v Speaker 3>matters for actual election outcomes. I don't think the median

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<v Speaker 3>voter is voting on that. They're voting on much broader issues.

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<v Speaker 3>So I think that the committee feels emboldened to do

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<v Speaker 3>whatever it thinks is right at that meeting or any

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<v Speaker 3>of the other meetings and the lead up to the election.

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<v Speaker 3>And they have moved in the past during the election cycle,

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<v Speaker 3>and I think they can do that if they wish

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<v Speaker 3>this time.

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<v Speaker 1>When the FED does begin to cut rates, how should

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<v Speaker 1>we think about the next three, six nine meetings after that?

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<v Speaker 1>How will they proceed in what may be a prolonged

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<v Speaker 1>rate reduction move.

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<v Speaker 4>How will that procede?

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<v Speaker 3>You think I think it'd be slow. I think that

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<v Speaker 3>you know, at least as up today, you would think

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<v Speaker 3>that the inflation rate will come down slowly towards two percent.

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<v Speaker 3>But it would depend on the data and what else

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<v Speaker 3>is going on, as it always does.

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<v Speaker 2>I look at the FED, and I'm going to be honest,

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<v Speaker 2>Jim Buller, do you have prodigious economic chops. There's a

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<v Speaker 2>few other people out there as well, But the fact is,

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<v Speaker 2>on this program we've had more than a few guests

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<v Speaker 2>take a shot at a central bank that seems to

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<v Speaker 2>be in love with non economists. Do we need a

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<v Speaker 2>representation at the governor's level and at the senior levels

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<v Speaker 2>of the FED that include it's prodigious PhD macroeconomics or

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<v Speaker 2>can we go with a more generalist approach.

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<v Speaker 3>I think it's great to have a mix of voices

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<v Speaker 3>and a mix of backgrounds on the committee. I think

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<v Speaker 3>it really helps. You get too many people like me

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<v Speaker 3>and you get in too much in the weeds about analysis.

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<v Speaker 3>But if you don't have enough of that, then you

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<v Speaker 3>know you can't do a good job either, and so

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<v Speaker 3>a good mix is the right way to go. I've

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<v Speaker 3>learned a lot from my colleagues that have markets experience,

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<v Speaker 3>and now there's a couple of new people coming on

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<v Speaker 3>that have a lot of market.

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<v Speaker 2>Jim Bullard was this week continue He's a Purdue of

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<v Speaker 2>course at Crannerton White. The Mitch Daniels combine out there

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<v Speaker 2>are they're great graduate and undergraduate programs. Here's the history

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<v Speaker 2>and you're never going to admit it, but there was

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<v Speaker 2>a rogue dot dots and you don't know which dot is.

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<v Speaker 2>You don't know which dot Janet Yellen was, but you

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<v Speaker 2>knew which dot Bullard was because there was a dot.

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<v Speaker 4>If the dots loss their meaning, as you protested with

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<v Speaker 4>your rogue dot, you could barely fit on the Bloomberg screen.

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<v Speaker 2>Tom Secunda is over in Bloomberg LP aging because you

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<v Speaker 2>ruined the dots screen.

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<v Speaker 3>That's yeah, well, it was a different era. You know,

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<v Speaker 3>we were talking about regimes earlier. It was definitely a

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<v Speaker 3>situation where interest rates were low around the world. You

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<v Speaker 3>had negative nominal rates around the world, and I just thought,

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<v Speaker 3>why don't we just admit that we're in this low

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<v Speaker 3>nominal interestrate, low inflation regime and project based on that,

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<v Speaker 3>and not project not try to project that we're going

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<v Speaker 3>to swing if.

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<v Speaker 2>The dots loss are sell by date. I mean, is

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<v Speaker 2>there any efficacy to the dots now?

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<v Speaker 3>I think there could be great reforms on the dot plot,

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<v Speaker 3>but the committee has just not wanted to make those reforms.

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<v Speaker 3>One thing that's very strange about the dots is that

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<v Speaker 3>the horizon shortens up as you go through the year.

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<v Speaker 3>So now you've got a dot plot that really isn't

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<v Speaker 3>comparable to the previous dot plots because now you've only

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<v Speaker 3>got six months left in the year. Was when you started,

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<v Speaker 3>you had a whole year out in the future.

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<v Speaker 4>So I just saw this stuff. I think it's all

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<v Speaker 4>just yeah, I don't vote, I don't focus on the it's.

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<v Speaker 1>A great fun sat Well, I'm trying to explain to

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<v Speaker 1>my offspring Jim, that about this is a more normalized

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<v Speaker 1>interest rate environment. This is where most of the time,

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<v Speaker 1>this society, this economy lives and they're trying to figure

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<v Speaker 1>out how to borrow for cars and houses and things

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<v Speaker 1>like that. Is this, in fact where we're going to

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<v Speaker 1>be for some time? Do you think this kind of No.

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<v Speaker 3>I do think we're in this higher interest rate regime,

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<v Speaker 3>and I do think that it's better on the whole.

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<v Speaker 3>If you think about the second half of the nineties,

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<v Speaker 3>which was really the best period for the US economy

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<v Speaker 3>in the postwar era. That was had interest rates like

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<v Speaker 3>we have today broadly speaking, and the economy can grow

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<v Speaker 3>very rapidly. You know, we had a great run at

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<v Speaker 3>that time, and I do think you probably get a

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<v Speaker 3>little bit better allocation of capital because it's more of

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<v Speaker 3>a decision about it's my project really worth it or not,

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<v Speaker 3>and you don't get this kind of experimenting around with

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<v Speaker 3>kind of projects that probably have low payoff.

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<v Speaker 2>You're West Lafayette, Indiana. Yes, has a three point zero

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<v Speaker 2>percent unemployment rate. They're fully employed at Harry's Chocolate Shop.

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<v Speaker 4>I mean, there's no question about it.

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<v Speaker 2>What does urban America I mean, you and I have

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<v Speaker 2>talked about this in your offices in Saint Louis years ago.

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<v Speaker 2>What is urban America missing about the vibrancy of the Midwest.

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<v Speaker 4>Of this nation.

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<v Speaker 3>I think the Midwest is extremely powerful, very populous. It

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<v Speaker 3>might not all be in one place like it is

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<v Speaker 3>here in New York City, but really a lot of people,

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<v Speaker 3>a lot of great manufacturing, a lot of great businesses

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<v Speaker 3>spread out across the Midwest and it's a great place

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<v Speaker 3>to live. And that because you're more spread out, you

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<v Speaker 3>have better housing markets and better options.

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<v Speaker 2>Is there a labor arbitrage still going on right now

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<v Speaker 2>where I'm sorry, We're gon. We're gonna take the Biden

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<v Speaker 2>Investment program and that's where we're going to find the

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<v Speaker 2>jobs because the labor total cost all in it.

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<v Speaker 3>There's a lot happening in Indiana. And one thing that's

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<v Speaker 3>happening is this I sixty five cord or between Lafayette

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<v Speaker 3>and Indianapolis. If you drive up and down that you'll

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<v Speaker 3>see lots and lots of businesses locating there. And we

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<v Speaker 3>just had a deal with South Dekorean chip maker that's

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<v Speaker 3>going to move to West Lafayette to Purdue in.

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<v Speaker 2>Studio where there's the former president of Saint Louis feder

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<v Speaker 2>Reserve System, James Bullard, he of Indiana University. He have

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<v Speaker 2>a profoundly important paper I'm guessing twenty.

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<v Speaker 4>Sixteen and the regimes that.

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<v Speaker 2>We face within our monetary policy. Paul I can report

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<v Speaker 2>to you at his Purdue at Harry's Chocolate up right

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<v Speaker 2>at the top of the menu, domestic cans.

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<v Speaker 4>They have Budweiser. I know, very important.

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<v Speaker 1>Well, Tom, I found another place we're gonna have to

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<v Speaker 1>go through. This could be a busy time for us

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<v Speaker 1>there linn Wood Tavern.

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<v Speaker 4>Yeah, and Grill. I've heard Rachel's mentioned this.

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<v Speaker 1>Though mean exactly three days all mash.

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<v Speaker 4>Rivers right there. Still when you do all nighters in mathematics.

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<v Speaker 1>That's my kind of place.

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<v Speaker 2>He haveing Jim Billard with us, Jim, I got to

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<v Speaker 2>go to monetary policy or in the measurement of the

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<v Speaker 2>inflation adjusted yield. As you mentioned, we had negative rates

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<v Speaker 2>nominally as completely wacko when you were, you know, doing

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<v Speaker 2>the Saint Louis fat. We're now back to a two

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<v Speaker 2>percent is ten.

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<v Speaker 4>Year real yield. Does that impinge an investment in America?

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<v Speaker 3>I think it does, And like we were saying earlier.

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<v Speaker 3>I think it it makes people think more carefully about

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<v Speaker 3>their projects, you know what is really going to pay off,

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<v Speaker 3>and you get probably rid of some of the malinvestment

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<v Speaker 3>or the misinvestment that might otherwise occur with very cheap

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<v Speaker 3>money available.

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<v Speaker 1>Hey, Jim does to what extent is a FED think

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<v Speaker 1>about the consumer here, because you think about the American consumer,

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<v Speaker 1>we probably have two at least two sets of consumers

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<v Speaker 1>out there. The folks that are maybe you know, do

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<v Speaker 1>have some assets, whether it's stocks, bonds, real estate doing well,

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<v Speaker 1>maybe even benefiting from a higher instrain environment. Everybody else

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<v Speaker 1>who may not have those types of assets or economic support,

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<v Speaker 1>they're really filling the impact of inflation. How does it

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<v Speaker 1>FED think about that?

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<v Speaker 3>Yeah, I think inflation is very pernicious and punishes the

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<v Speaker 3>lower end of the income distribution very heavily. And you're

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<v Speaker 3>certainly seeing that and hearing that when you talk to

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<v Speaker 3>people in surveys, they do not like the inflation at all.

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<v Speaker 3>They do not like the fact that the price level

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<v Speaker 3>is up some nineteen percent since twenty twenty one, and

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<v Speaker 3>they're very upset about that.

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<v Speaker 2>One final question, blistering question s K heinins they're going

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<v Speaker 2>to invest in.

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<v Speaker 4>Purdue Research Park.

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<v Speaker 2>Yes, the number one thing in the zeitgeist is America

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<v Speaker 2>doesn't have the employees to be labor in those factories.

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<v Speaker 2>Are you confident we can develop highly motivated, skilled labor

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<v Speaker 2>as we perceive in Asia.

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<v Speaker 3>No. No, I think we'll have no trouble pulling in

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<v Speaker 3>the right workforce for the South Korean company, and that'll

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<v Speaker 3>be a major chip manufacturing facility. We've tried to reshore

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<v Speaker 3>a lot of our chip making, as you know, across

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<v Speaker 3>the country, so this is part of that effort.

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<v Speaker 2>Jim Buller to future governors of the Federal Reserve System,

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<v Speaker 2>Constant Hunter and Julia corden Otto.

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<v Speaker 4>Are here on your way out, saying hello, you're hugely

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<v Speaker 4>go Jim Bullard, thank you so much. Greatly appreciated with

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<v Speaker 4>the Saint Louis Fed