Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: We got so much to talk about with James Bullard.
Speaker 2: Of course, original is Saint Louis Fed with all the
Speaker 2: research heritage of the Saint Louis Fed his PhD from
Speaker 2: Indiana University, and he's wearing a boiler up Purdue pin
Speaker 2: today with this wonderful challenge that's taking on. What's the
Speaker 2: difference between I you in Purdue.
Speaker 3: Purdue is number four engineering school in the country. So
Speaker 3: it's MIT Stanford.
Speaker 4: Berkeley out in the Midwest.
Speaker 3: Yeah, and so the medical school is down at IU,
Speaker 3: but engineering is at Produce. So it's a great technical
Speaker 3: university and the business school is aiming to combine even
Speaker 3: better than we have with the engineering school and get
Speaker 3: great graduates school.
Speaker 4: You're enjoying the private life.
Speaker 3: Oh I am, and it's it's going very well. Well.
Speaker 3: It's great to be back on campus and around the
Speaker 3: students and hanging out.
Speaker 2: I want to go back to I believe it was
Speaker 2: twenty sixteen and doctor Bullard, you had a profoundly important
Speaker 2: paper saying, as Leguard is saying at the ECB, we
Speaker 2: got to get off this idiot media micro analysis of
Speaker 2: data and look at the regimes that we live in
Speaker 2: as we go to this FED meeting today, within disinflation,
Speaker 2: with the FED, with the ECB leading, and of the
Speaker 2: rate cut for Jim Bullard, Is there a new regime
Speaker 2: out there right now post pandemic.
Speaker 3: I do think we've switched regimes. We're in a higher
Speaker 3: nominal interest rate, higher inflation environment, and I think that
Speaker 3: means that comparisons should be made more to the second
Speaker 3: half of the nineteen nineties in the first part of
Speaker 3: the two thousands than to the twenty nine to twenty
Speaker 3: nineteen period, which was a low nominally straight low inflation regime.
Speaker 2: Paul wants to get here. We're going to tie the
Speaker 2: bow here if I can. It's critical. Is this the
Speaker 2: press conference where we get some form of hint or
Speaker 2: statement to where Bullard and Clarida are, which is away
Speaker 2: from the slavery.
Speaker 4: Of two point zero percent? Uh?
Speaker 2: Do we get a higher an understanding of a higher
Speaker 2: run rate for our start or for inflation?
Speaker 3: Uh? Inflation, No, the inflation target will stay at two percent,
Speaker 3: But inflation itself, I think the ideal policy would guide
Speaker 3: inflation to two percent. But assom tote a word that
Speaker 3: you love, Tom Assum tote to two percent. So you
Speaker 3: want this gentle reduction inflation right down to two percent.
Speaker 3: You don't want to you don't want to be bouncing
Speaker 3: above them below two percent. I think you want this
Speaker 3: nice glide path into two percent. So hopefully that's what
Speaker 3: we'll get here. And this, this report today is very encouraging.
Speaker 1: And so Jim, there are folks out there in academia,
Speaker 1: in practice, in the marketplace, I think this fit of
Speaker 1: reserve is already behind the curve that they should have
Speaker 1: already been cutting. Now, how do you think about that?
Speaker 3: So I've argued that earlier this year we did get
Speaker 3: tremendous reduction and core PC inflation in the second half
Speaker 3: of twenty twenty three it was four point eight percent.
Speaker 3: Last summer on a twelve month basis, it came all
Speaker 3: the way down to two point eight percent. So in
Speaker 3: this world, in this game, two hundred basis points of
Speaker 3: inflation reduction over six months or so is fantastically large.
Speaker 3: So you should be taking that into account. You should
Speaker 3: be reducing the policy rate. But the committee just couldn't
Speaker 3: find the right moment to do that because all the
Speaker 3: inflation reports up to now were mixed or even even negative,
Speaker 3: so unfortunately didn't find the right moment to do that.
Speaker 3: But this idea that the policy rate is a little
Speaker 3: too high for where the economy is today, I think
Speaker 3: makes a lot of sense. So I've advocated for like
Speaker 3: a technical adjustment. You know, you want to get this
Speaker 3: idea across that, because inflation isn't near five percent anymore.
Speaker 3: Core inflation, it's now under three percent, we can afford
Speaker 3: to reduce the policy rate, still be restrictive and get
Speaker 3: this glide path into the two percent target.
Speaker 1: Love to get your opinion on another topic that investors
Speaker 1: are thinking about, which is this is an election year
Speaker 1: and what does that mean for the Federal Service to timing.
Speaker 1: I mean, a lot of folks are saying, you don't
Speaker 1: want to be too close to the election, so maybe
Speaker 1: a September might not be the right time.
Speaker 3: I think the first of all, I don't think anybody
Speaker 3: ever won an election based on whether the FED did
Speaker 3: something at the September meeting, so I don't think it
Speaker 3: matters for actual election outcomes. I don't think the median
Speaker 3: voter is voting on that. They're voting on much broader issues.
Speaker 3: So I think that the committee feels emboldened to do
Speaker 3: whatever it thinks is right at that meeting or any
Speaker 3: of the other meetings and the lead up to the election.
Speaker 3: And they have moved in the past during the election cycle,
Speaker 3: and I think they can do that if they wish
Speaker 3: this time.
Speaker 1: When the FED does begin to cut rates, how should
Speaker 1: we think about the next three, six nine meetings after that?
Speaker 1: How will they proceed in what may be a prolonged
Speaker 1: rate reduction move.
Speaker 4: How will that procede?
Speaker 3: You think I think it'd be slow. I think that
Speaker 3: you know, at least as up today, you would think
Speaker 3: that the inflation rate will come down slowly towards two percent.
Speaker 3: But it would depend on the data and what else
Speaker 3: is going on, as it always does.
Speaker 2: I look at the FED, and I'm going to be honest,
Speaker 2: Jim Buller, do you have prodigious economic chops. There's a
Speaker 2: few other people out there as well, But the fact is,
Speaker 2: on this program we've had more than a few guests
Speaker 2: take a shot at a central bank that seems to
Speaker 2: be in love with non economists. Do we need a
Speaker 2: representation at the governor's level and at the senior levels
Speaker 2: of the FED that include it's prodigious PhD macroeconomics or
Speaker 2: can we go with a more generalist approach.
Speaker 3: I think it's great to have a mix of voices
Speaker 3: and a mix of backgrounds on the committee. I think
Speaker 3: it really helps. You get too many people like me
Speaker 3: and you get in too much in the weeds about analysis.
Speaker 3: But if you don't have enough of that, then you
Speaker 3: know you can't do a good job either, and so
Speaker 3: a good mix is the right way to go. I've
Speaker 3: learned a lot from my colleagues that have markets experience,
Speaker 3: and now there's a couple of new people coming on
Speaker 3: that have a lot of market.
Speaker 2: Jim Bullard was this week continue He's a Purdue of
Speaker 2: course at Crannerton White. The Mitch Daniels combine out there
Speaker 2: are they're great graduate and undergraduate programs. Here's the history
Speaker 2: and you're never going to admit it, but there was
Speaker 2: a rogue dot dots and you don't know which dot is.
Speaker 2: You don't know which dot Janet Yellen was, but you
Speaker 2: knew which dot Bullard was because there was a dot.
Speaker 4: If the dots loss their meaning, as you protested with
Speaker 4: your rogue dot, you could barely fit on the Bloomberg screen.
Speaker 2: Tom Secunda is over in Bloomberg LP aging because you
Speaker 2: ruined the dots screen.
Speaker 3: That's yeah, well, it was a different era. You know,
Speaker 3: we were talking about regimes earlier. It was definitely a
Speaker 3: situation where interest rates were low around the world. You
Speaker 3: had negative nominal rates around the world, and I just thought,
Speaker 3: why don't we just admit that we're in this low
Speaker 3: nominal interestrate, low inflation regime and project based on that,
Speaker 3: and not project not try to project that we're going
Speaker 3: to swing if.
Speaker 2: The dots loss are sell by date. I mean, is
Speaker 2: there any efficacy to the dots now?
Speaker 3: I think there could be great reforms on the dot plot,
Speaker 3: but the committee has just not wanted to make those reforms.
Speaker 3: One thing that's very strange about the dots is that
Speaker 3: the horizon shortens up as you go through the year.
Speaker 3: So now you've got a dot plot that really isn't
Speaker 3: comparable to the previous dot plots because now you've only
Speaker 3: got six months left in the year. Was when you started,
Speaker 3: you had a whole year out in the future.
Speaker 4: So I just saw this stuff. I think it's all
Speaker 4: just yeah, I don't vote, I don't focus on the it's.
Speaker 1: A great fun sat Well, I'm trying to explain to
Speaker 1: my offspring Jim, that about this is a more normalized
Speaker 1: interest rate environment. This is where most of the time,
Speaker 1: this society, this economy lives and they're trying to figure
Speaker 1: out how to borrow for cars and houses and things
Speaker 1: like that. Is this, in fact where we're going to
Speaker 1: be for some time? Do you think this kind of No.
Speaker 3: I do think we're in this higher interest rate regime,
Speaker 3: and I do think that it's better on the whole.
Speaker 3: If you think about the second half of the nineties,
Speaker 3: which was really the best period for the US economy
Speaker 3: in the postwar era. That was had interest rates like
Speaker 3: we have today broadly speaking, and the economy can grow
Speaker 3: very rapidly. You know, we had a great run at
Speaker 3: that time, and I do think you probably get a
Speaker 3: little bit better allocation of capital because it's more of
Speaker 3: a decision about it's my project really worth it or not,
Speaker 3: and you don't get this kind of experimenting around with
Speaker 3: kind of projects that probably have low payoff.
Speaker 2: You're West Lafayette, Indiana. Yes, has a three point zero
Speaker 2: percent unemployment rate. They're fully employed at Harry's Chocolate Shop.
Speaker 4: I mean, there's no question about it.
Speaker 2: What does urban America I mean, you and I have
Speaker 2: talked about this in your offices in Saint Louis years ago.
Speaker 2: What is urban America missing about the vibrancy of the Midwest.
Speaker 4: Of this nation.
Speaker 3: I think the Midwest is extremely powerful, very populous. It
Speaker 3: might not all be in one place like it is
Speaker 3: here in New York City, but really a lot of people,
Speaker 3: a lot of great manufacturing, a lot of great businesses
Speaker 3: spread out across the Midwest and it's a great place
Speaker 3: to live. And that because you're more spread out, you
Speaker 3: have better housing markets and better options.
Speaker 2: Is there a labor arbitrage still going on right now
Speaker 2: where I'm sorry, We're gon. We're gonna take the Biden
Speaker 2: Investment program and that's where we're going to find the
Speaker 2: jobs because the labor total cost all in it.
Speaker 3: There's a lot happening in Indiana. And one thing that's
Speaker 3: happening is this I sixty five cord or between Lafayette
Speaker 3: and Indianapolis. If you drive up and down that you'll
Speaker 3: see lots and lots of businesses locating there. And we
Speaker 3: just had a deal with South Dekorean chip maker that's
Speaker 3: going to move to West Lafayette to Purdue in.
Speaker 2: Studio where there's the former president of Saint Louis feder
Speaker 2: Reserve System, James Bullard, he of Indiana University. He have
Speaker 2: a profoundly important paper I'm guessing twenty.
Speaker 4: Sixteen and the regimes that.
Speaker 2: We face within our monetary policy. Paul I can report
Speaker 2: to you at his Purdue at Harry's Chocolate up right
Speaker 2: at the top of the menu, domestic cans.
Speaker 4: They have Budweiser. I know, very important.
Speaker 1: Well, Tom, I found another place we're gonna have to
Speaker 1: go through. This could be a busy time for us
Speaker 1: there linn Wood Tavern.
Speaker 4: Yeah, and Grill. I've heard Rachel's mentioned this.
Speaker 1: Though mean exactly three days all mash.
Speaker 4: Rivers right there. Still when you do all nighters in mathematics.
Speaker 1: That's my kind of place.
Speaker 2: He haveing Jim Billard with us, Jim, I got to
Speaker 2: go to monetary policy or in the measurement of the
Speaker 2: inflation adjusted yield. As you mentioned, we had negative rates
Speaker 2: nominally as completely wacko when you were, you know, doing
Speaker 2: the Saint Louis fat. We're now back to a two
Speaker 2: percent is ten.
Speaker 4: Year real yield. Does that impinge an investment in America?
Speaker 3: I think it does, And like we were saying earlier.
Speaker 3: I think it it makes people think more carefully about
Speaker 3: their projects, you know what is really going to pay off,
Speaker 3: and you get probably rid of some of the malinvestment
Speaker 3: or the misinvestment that might otherwise occur with very cheap
Speaker 3: money available.
Speaker 1: Hey, Jim does to what extent is a FED think
Speaker 1: about the consumer here, because you think about the American consumer,
Speaker 1: we probably have two at least two sets of consumers
Speaker 1: out there. The folks that are maybe you know, do
Speaker 1: have some assets, whether it's stocks, bonds, real estate doing well,
Speaker 1: maybe even benefiting from a higher instrain environment. Everybody else
Speaker 1: who may not have those types of assets or economic support,
Speaker 1: they're really filling the impact of inflation. How does it
Speaker 1: FED think about that?
Speaker 3: Yeah, I think inflation is very pernicious and punishes the
Speaker 3: lower end of the income distribution very heavily. And you're
Speaker 3: certainly seeing that and hearing that when you talk to
Speaker 3: people in surveys, they do not like the inflation at all.
Speaker 3: They do not like the fact that the price level
Speaker 3: is up some nineteen percent since twenty twenty one, and
Speaker 3: they're very upset about that.
Speaker 2: One final question, blistering question s K heinins they're going
Speaker 2: to invest in.
Speaker 4: Purdue Research Park.
Speaker 2: Yes, the number one thing in the zeitgeist is America
Speaker 2: doesn't have the employees to be labor in those factories.
Speaker 2: Are you confident we can develop highly motivated, skilled labor
Speaker 2: as we perceive in Asia.
Speaker 3: No. No, I think we'll have no trouble pulling in
Speaker 3: the right workforce for the South Korean company, and that'll
Speaker 3: be a major chip manufacturing facility. We've tried to reshore
Speaker 3: a lot of our chip making, as you know, across
Speaker 3: the country, so this is part of that effort.
Speaker 2: Jim Buller to future governors of the Federal Reserve System,
Speaker 2: Constant Hunter and Julia corden Otto.
Speaker 4: Are here on your way out, saying hello, you're hugely
Speaker 4: go Jim Bullard, thank you so much. Greatly appreciated with
Speaker 4: the Saint Louis Fed