Bullard: As Powell Steps Down as Fed Chair, He May Stay on as Fed Board Governor

Former St. Louis Fed President, Dean of Purdues's Mitch Daniels School of Business sees economic ground being laid for rate cut in second haf of year

I have been interviewing Jim Bullard since 2008 when he took over as president of the Federal Bank of St. Louis. And have continued to do as he left the Fed and took over as the dean of Purdue ’s Mitch Daniels School of Business in 2023. When he joined me this week I was eager to hear where he sees the Fed taking monetary policy going as officials wait for more data ahead of the March meeting, and as Fed Chair Jay Powell gets ready to step down in May

I was not surprised when Jim toldme he is not certain yet but for now is looking for another 25 bps rate cut in the second half of the year. I was all but shocked when he told me that he thought Fed chair Powell might leave when his term as chair is up but stay on for the remaining two more years as a member of the Fed’s Board of Governors.

“I’m saying that he doesn’t seem very inclined to step down from that seat because he wants to protect Fed independentce. And, he’s, he’s worried about the future of the Fed,” Jim says. “So I think to get that to happen, you’d have to reassure the chairman that…Fed independence was going to be protected. And, they’ve been obviously fighting with the administration, so much that, that trust has broken down there.”

‘So it could well be that the chair will stay on in his seat,” he says, even as next-Fed-Chair elect Kevin Warsh gets confirmed for the other seat.

Amid heightened political tensions and acrimony between the Federal Reserve and the administration, Jim sees a decision by Powell’s to remain on the Board as a potential stabilizing force. He suggests that Powell may view his continued presence as a governor not as a disruption to Warsh’s agenda but as a moderating influence, . He says this stance reflects Powell’s sense of historical responsibility to maintain the integrity of the institution, even if he is stepping down from the chair role.

So dive in and hear more from Jim about how critical Powell’s decision w ill be to maintaining Fed policy independence. And get all of his indepth analysis of what’s driving inflation, the labor market and more.

Good growth and one rate cut ahead 00:01:20:07

I think, they’re headed for one more cut. And I think it would be in the second half of the year. And, and so I would stick by that. I think it’ll be a good year for us. Economic growth. For all the reasons, Wall Street analysts have been citing, fiscal policy tailwind, I, you know, reasonably strong consumption. And I think, you know, tariff uncertainty, we can talk about that, but I think still, under control here. So, for all those reasons, I actually think it will be a good year for growth. And then on the inflation side, I think, you know, inflation is continuing to hang up, higher than the committee would like. And that’s going to make them reluctant to move too quickly. And so I think that all adds up to about one rate cut during the year.

A rate cut is not certain… 00:02:26:25

I know there’s, there’s uncertainty. Could go a lot of directions, but I’m just saying, based on the data today and the outlook today, that’s what I would guess. Yeah, I would look at tips, rest, inflation compensation. And that seems to be in reasonably good shape. And you know, in trading over the last month or so. So I think, those numbers there are the ones that you would expect if the market really was expecting inflation to go back to 2%. So I think that’s very comforting for the committee. They would like to see actual inflation. We’re coming down. But, for a variety of reasons, they might be, you know, sticking up a little bit higher. So I think they’d like confirmation on that. Before they make any moves.

Firms price for profit and to keep their consumers 00:04:29:22

Yeah. I mean, if you look at that series there, they have price setting behavior by the firms. So the firms, you know, in a grocery store, they have to decide what price they’re going to put on their product on the shelf, maybe some coupon discounts or something in certain situations. But they’ve got to make that pricing decision. So that’s positive pricing. The consumers, of course, coming into the store, they want the lowest that they can get. And good for them. But I think it’s the expectations of the businesses. What do they think they can raise prices or not? If they thought they were in an inflationary environment, they might raise prices consistently every quarter to keep up with that. That happened during the, 2021, inflation. But if they think that, inflation is going to go back to 2%, then they’d be very reluctant to raise their prices because they might lose customers. And if they do lose customers, cost of customer acquisition is very high. So, it’s very hard to get those customers back. So I think they’re generally speaking, they’re kind of reluctant to raise the prices.

Business expectations matter most 00:05:43:01

Based on the expectations that are out there. They’re always reviewing their pricing decisions, of course. And they also have to consider regular, you know, sort of bread and butter supply and demand, you know, of their product and what innovations are occurring in the market and everything else. But with respect to inflation, it’s probably the business expectations that are the most important. So you could look at that. Those, there are surveys of, business expectations and, I think they’ve been if I’m recalling my chart correctly, I think they’ve been dressing down a little bit. But I like the market based expectations because the market is taking all of that into account, including the Michigan survey, including the business expectations. And then they’re making bets on what they think will happen to inflation, looking at all that data. And they’re putting real money on the table. So, I think it’s an information aggregator, to look at actual markets, for inflation expectations.

Job market right now has been driven more by supply factors 00:07:22:05

Yeah. I think, a important piece of research, was done at the San Francisco Fed, and they’ve, recently blogged about that. And it’s, detailed study, immigration, undocumented immigration from, let’s say 2021 till now. And, the, excellent analysis, a lot of detail about, where workers might go, what kinds of industries that might work and what the rate of growth and rate of decline in those places, has been. And they found, almost a 1 to 1 correspondence between the change in immigration policy and the change in labor market, employment growth. So, I take that as, what we’ve witnessed over the last few years is almost entirely due to supply, factors coming from, immigration policy, very rapid growth during the, earlier years.

Lower your expectations for monthly job creation 00:08:33:11

And this sample. And then after as you come into, 2024 and 2025, so you know, much less or negative growth or, much less growth, because the immigration policy change. So I think that’s very informative about how we should think about non-farm payroll employment. We have been thinking, you know, a good number is like 150 or 200 or 250 or something like that. And we’re used to those kinds of numbers. But I don’t think that’s what’s happening going forward. If we keep the same immigration policy that we have, then I think you should expect only 30,000, per month. And I, I even today, even though there’s arguments but main a lot and people have been talking about a lot, I’m not sure the market has really adjusted down. You know, their entire expectations about what they think. A typical jobs report should, should show us also, I would you’d expect some negative numbers and the variance hasn’t changed. So the, you’d expect some negative numbers in there, and that’s supposed to be okay. That’s supposed to be consistent with the normal growth, of jobs and the economy.

The unemployment rate has become more important 00:09:47:06

Given the natural variation in the data. So all of this makes me think that the unemployment rate is maybe takes outsized importance here. It’s always been important. But, since non-farm payrolls isn’t really giving us the same signal that it did, should probably look at unemployment that’s been ticking down. And unemployment insurance claims also showing very low levels. So I think that, probably the best interpretation is that the labor markets in pretty good shape, given the new immigration policy that we have and, the economy is probably doing pretty well.

AI is a great technology & will enhance productivity 00:11:03:06

No, I think it’s a great technology that will, it will enhance, productivity. So that part I think is absolutely true. We actually put in an AI requirement here for all undergrads, in the business school. And now that’s been adopted by the university as a whole. So everyone’s going to be versed in AI that’s graduating from here. So I think, it will increase productivity. I think it will be like a lot of the other, great technological changes that we’ve had over many decades and centuries, even in the US. And it will enhance, worker productivity ultimately. And that will allow workers to make more, wages will be higher for an hour of work because they will be more productive.

Doomsday is not an equilibrium 00:11:50:11

So I think that’s exactly what’s going to happen. These kinds of doomsday scenarios that are laid out, you know, they, they don’t take into account if you really thought everyone’s going to be unemployed and down and out, you won’t have anybody to sell a product to. So that’s why it can’t be. That can’t be an equilibrium. That can’t be a good prediction to make. You know, the value of the labor is going to change depending on how much they’re using the new tool or not using the new tool. And I think that’s the way to think about this. So, I’ll just give a simple example. So we’ve had a lot of okay this winter.

How/why AI works 00:12:30:22

So suppose I have a snow, snow removal business and all my guys use shovels and they’re great. And they use shovels and they’re good customer service. And it’s a good business. You invent the snow blower. So what am I going to do? Well, I’m going to adopt snow blowers. I’m going to use less people to shovel the snow. And, I’m going to have a more productive business, and that’s going to start flowing into an equilibrium. So that’s exactly what’s going to happen here. It does mean that some of my shellshocked snow shovel ers are going to have to go get different jobs. They’re going to have to move to different industries. But the history is that, new jobs are created in other ways in other places that wouldn’t have been there previously.

Solid growth and low unemployment 00:13:52:11

I think, I think we’ll get 3% growth this year. When all the dust settles at the end, you know, by this time next year, we’ll know that number. But, I see no reason why it wouldn’t be a very strong year in terms of, GDP, real GDP growth. I think the labor market accordingly will continue, have a relatively low unemployment. I would say the current rate is very close to what most people would, estimate as a natural rate of unemployment, for the U.S. and, so that’s going to keep the committee, you know, waiting to see if they get the additional disinflation that they’ve been waiting for a while. And unless they see that, I don’t think they’ll come down, any much further or any further on the, on the policy. Right. That’s why you got to wait till the second half of the year to see that, see that developed.

AI breeds more uncertainty 00:15:09:21

Yeah I think the, you know, to the extent there is greater productivity growth and it’s hard to measure and it’s very volatile, but, to the extent it is higher than, that would increase the, the neutral rate. So if the committee stands still and the neutral rates going up, then that would be, a more dovish policy. And so they may they may take some on the committee may take comfort from that, that they, they don’t actually have to move the policy rate in order to get, a little bit easier policy. But, before they would move further, they’ve already moved 75 basis points here. So I think they want to see, how that’s influencing the economy. And, and, especially inflation.

The tariff decision seemed inevitable 00:16:47:24

Yeah, I think Governor Waller’s right that, this has not had, nearly as much influence on inflation as people were predicting earlier. I think there’s a variety of reasons for that. I think the Supreme Court decision was widely anticipated. This is something that have been talked about for a good six months at least, or nine months even. And I think most people that looked at it, both lawyers and non-lawyers, but when they looked at, it just it just didn’t look like Congress had really delegated this much authority to the executive branch to set tariffs. So, you know, most people seem to think it was going to be very hard for the Supreme Court to say that somehow the Congress had really delegated this much, authority. So, the decision came out as expected, I think, and without too many, prescriptive, additions to that. So I guess they sent it back to the lower court for that. And, the administration also, I think, anticipated that this might happen. And they were they were ready with, with their backup plan. And that’s what we’re seeing right now. So ultimately, I think, it’s not changing things too much. You can talk about effective tariff rates and stuff, but I think the main issue is that, tariffs are still here and, they’re still relatively, you know, similar to the way they were. And so for that reason, the market, you didn’t get much market reaction to this entire, sequence here.

Warsh likely to be confirmed 00:19:15:03

Well, Kevin Warsh does seem to have support in the Senate. I’m not sure he can pick up bipartisan support, but he is seems to have support in the Republican caucus. So if they it seems like the administration has to make, has to either use their available seat and, and use that and get, Kevin Warsh confirmed for that seat and possibly to make a deal somehow in order to get, Chair Powell to step down from his seat <later on>.

Powell NOT likely to step down… 00:19:53:01

But my reading of it is that he’s not too inclined to step down from his seat. He’s been very circumspect about what he would do. I think he wants to possibly remain on the board to protect fed independence and, may see it as, his historical responsibility to do so… Because, yeah, there are seven seats on the board of governors. They’re all occupied, right now. So and in some sense, there’s no openings right now. But you have Steve Miran, his he could, step down, and his seat has actually expired. He’s working overtime, I guess, his seat is expired, so. But he can continue as long as, no other, person is confirmed. But they could confirm somebody for that seat. And that is the, that seat has a long term on it. Now. I guess 14 years. So that would be the one to use, for the Fed chair. So that could be done. But, there’s a blockade in the Senate, as you know, with Senator Tillis voting with the Democrats to not allow this. So they’re going to have to make some deal. Of course, deals can’t be made, but they’re going to have to make some deal to break that blockade. And then you’ve got the issue of would there be any other seats that would come open in the near future? And, the only seat that it seems likely or possible is, J Powell’s seat, which has two more years to run.

Sees Powell as the protector of Fed Independence 00:21:50:21

I’m saying that he doesn’t seem very inclined to step down from that seat because, you know, he wants to protect for the independents. And, he’s, he’s worried about the future of the Fed. So I think to get that to happen, you’d have to reassure the chairman that, that, Fed independence was going to be protected. And, they’ve been obviously fighting with the administration, so much that, that trust is broken down there. So it could well be that, that, chair will stay on in his seat. And even though, Governor Warsh gets confirmed for the other seat.

Powell’s mission would be to protect and defend not disrupt 00:23:19:20

Well, you know, not to put words in his mouth or anything. That’s certainly his decision. But, if he leaves and Fed, independence crumbles, he will go down in history as the guy who allowed that independence to crumble. So I think that is the calculus there is. Would he allow that? And probably he would not. Now would he, if Kevin came onto the board and was chair, would he interfere with that? I don’t really think so. Except that he would have a vote, on, policy and other matters. Yes. And so he’d probably be a moderating, voice on that, but, but I don’t think his idea would be to, disrupt, the Kevin Warsh agenda. His idea would be to protect, he would stay on to protect that independence. If you’re stepping down out of the chair role and into a governor role, it’s a simpler, it’s not as big a role. And, he could probably play that role pretty well.

Some Fed transitions are smooth… 00:25:08:15

Well, there’s been so much acrimony, that, you know, if it was if it was, a situation which is a more typical situation for an incoming, administration, they wouldn’t have been quite so acrimonious, and fighting with the fed and, and I think in many cases, the, you know, governors will just say, okay, let’s let the new president, go ahead with, with his agenda and appoint the people that he wants to appoint. And, but here there’s been a lot of acrimony and also a lot of transitions are relatively, smooth because the, agenda of the incoming person is basically, you know, continuous with what the outgoing, person is doing. So Bernanke to Yellen, for instance, even though that was a switch of parties, you know, there’s there’s a lot of continuity there. And you’re promoting the vice chair to the chair. And they had worked together and, and certainly were pretty supportive of each other’s, policy. So and again with Yellen to Powell I think similar situation. But here you’ve got a relative outsider who’s been a critic of the fed. And so that’s a different sort of transition that we haven’t seen in a while. Maybe, you know, you might point to the Volcker Greenspan transition, possibly as, as something like that or certainly the. Well, but the biggest one of postwar macro history is the G. William Miller to, to Paul Volcker. That was a very traumatic, change in leadership at the, at the Fed. But that was maybe less. That’s a sort of special case. And, and very volatile era. So I don’t think we’re in that situation, but but you do have this, kind of less continuous sort of, transition going on here compared to what we’ve seen in the last couple of, of events like this.

District bank presidents: pre-nomination residency requirement? 00:28:08:23

I’ve been a little bit puzzled by this. All the people that I know of, you know, you’re hired by your board of directors. They are prominent people in that district, business people, bankers, others in the district they want you to be. You know, that. They want you to be in the district. So you’re definitely going to live in the district. And you’re not only that, but you’re going to get to know the district very, very well because the bank has a natural outreach program across the district. So I think, it’s a little puzzling that you would restrict ahead of time who could be in the job. You know, some people might have maybe they don’t live in California at that moment, but they might have lived in California previously or they, you know, or, and what you want to do a national search for, a position of this level of prominence. So it I say the usual thing is when you do a presidential search, you want the very best person that you can get, and you’re going to weigh everything, including whether they’re from the district or not. But but you’re going to also weigh many other factors and, and trying to get the best chief executive that you can for that bank. And, and for that operation. So, so I find it a little bit, a little bit puzzling, to try to restrict everything, that, you know, that much.

Jim Bullard

Dr. Samuel R. Allen Dean of the Mitch Daniels School of Business
Distinguished Professor of Service and Professor of Economics
Special Advisor to the President

Bio Publications CV Research Media

James “Jim” Bullard, former president of the Federal Reserve Bank of St. Louis and one of the nation’s foremost economists and respected scholar-leaders, was chosen in July 2023 as the inaugural dean of the reimagined Daniels School of Business at Purdue University.

Bullard, who took the reins as the Dr. Samuel R. Allen Dean on August 15, 2023, is charged with inspiring, further developing and implementing Purdue’s reimagined approach to a top-ranked business school across undergraduate, graduate, executive and research programs, preparing tomorrow’s business leaders and entrepreneurs in the Daniels School that is grounded in the principles of free enterprise, free market economy in generating opportunities and prosperity, and in the hallmarks of a well-rounded Purdue education and with a particular emphasis on tech-driven, analytics-based business success.

To further reflect and to maximize the impact of Bullard’s unique, national leadership experience, he also serves as Special Advisor to the President of the university, reporting to President Mung Chiang in that capacity. Bullard is also a Distinguished Professor of Service and Professor of Economics in the Daniels School.

Serving 15 years as the sitting president and chief executive officer of the Federal Reserve Bank of St. Louis, Bullard earned significant praise and accolades for his long-standing leadership and innovative thinking as part of the Federal Open Market Committee (FOMC) in guiding the direction of U.S. monetary policy. A noted economist and scholar, Bullard had been the longest-serving Federal Reserve Bank president in the country and ranked as the seventh-most influential economist in the world in 2014. His scholarly impact has been based on research-based thinking and intellectual openness to new theories and explanations. That allowed Bullard to be an early voice for economic change, helping the Federal Reserve deftly navigate complex economic landscapes such as the COVID-19 pandemic and the financial crisis during his tenure.

Before becoming president in 2008, Bullard served in various roles at the Federal Reserve Bank of St. Louis, starting in 1990 as an economist in the research division and later serving as vice president and deputy director of research for monetary analysis. For 15 years, he directed the activities of the Federal Reserve’s Eighth District, which branches into several states, including an extensive portion of southern Indiana. While serving on the Federal Reserve’s Open Market Committee, Macroeconomic Advisers named Bullard the FOMC’s second biggest mover of markets in 2010 behind Chairman Ben Bernanke and the biggest mover of markets in 2011 and 2013.

During his time as an academic economist and financial policy scholar, Bullard’s research has appeared in premier journals, including the American Economic Review; the Journal of Monetary Economics; Macroeconomic Dynamics; and the Journal of Money, Credit and Banking. The majority of his research is some form of macroeconomic analysis, focusing on monetary policy, inflation/deflation, and macroeconomic stability.

Bullard served as an honorary professor of economics at Washington University in St. Louis, where he also sat on the advisory council of the economics department as well as several advisory boards. The St. Louis Post-Dispatch named him the Top Workplace Leader among the region’s large employers as part of its 2018 Top Workplace Awards. Active in the community, Bullard has served on the board of directors of Concordance Academy of Leadership in St. Louis and was formerly the board chair of the United Way U.S.A. He is co-editor of the Journal of Economic Dynamics and Control, a member of the editorial advisory board of the National Institute Economic Review and a member of the Central Bank Research Association’s senior council.

Born in Wisconsin, Bullard grew up in Forest Lake, Minnesota, and received his doctorate in economics from Indiana University in Bloomington. He holds Bachelor of Science degrees in economics and in quantitative methods and information systems from St. Cloud State University in St. Cloud, Minnesota.

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