Jim Bullard left his post as president of the Federal Reserve Bank of St. Louis two years ago after starting there in 1990 as a research economist, rising to be research director of the bank and then serving 15 years in the top job and becoming the longest-serving Fed bank president in the country. Known as a thought leader, top scholar and innovative monetary policy expert, he was ranked in 2014 as the seventh-most influential economist in the world.
So it’s no surprise that even as he devotes himself to his new job of leading Purdue University’s “reimagined” Mitch Daniels School of Business, Jim’s views on where the Fed’s monetary policy path is heading at any point in time are closely followed among Fed watchers on Wall Street, academia, and central bank circles.
I point all of this out to emphasize that Jim is not looking for a rate cut when the Federal Open Market Committe, the Fed’s principal policy making body, wraps up its meeting on Wednesday next week. Tariff uncertainty has little to do with this. In fact he reminds me that he has expected from the beginning of this year’s Trump tariffs that they would not be inflationary.
Nor does he argue that rate cuts are needed to shore up the labor market because like many other economists he thinks it’s in pretty good shape.
With inflation trending back to its 2% target, and the federal funds rate still well above what the Fed sees as the neutral rate - which means policy is seen to be more restrictive than needed - Jim says it’s time for the Fed to move toward the two rate cuts that the FOMC’s median forecast still indicates, albeit slowly and carefully.
So dive in and hear what he has to say.
No July rate cuts but a Cut in Sept and likely in Dec 00:01:05.185
Jim Bullard: I think the Fed's going to use the July meeting to set up the September meeting for a rate cut with considerable probability attached to it. I think markets are already pricing that way in that direction, and the committee will send signals without being definitive. That. That's probably the way things will go. You know. They'll say that they want to see more information between now and then, and and can change their mind, but I still think that the fall for the fall of the year 2 more cuts is probably the the right thing to think about. That's what the committee signaled in June, and I think they'll probably follow through. That would mean one cut in September, and probably the other one in December.
Benign Inflation makes this the right move 00:02:13.370
<Inflation was> relatively benign this year. The committee wanted to see whether tariffs would have some impact, and I think just more broadly the whole contour of the of the trade war globally, and how it would play out, and now that they have a little bit more data through the 6 1st 6 months of the year, I think they feel more confident that they can resume the calibration recalibration campaign that they started last fall.
Cutting rates is recalibration not about the labor market 00:06:24.540
I wouldn't rationalize rate cuts in the second half of the year based on labor market performance, because labor market performance is pretty good, and that the unemployment rate is fairly, very close to what most people would say is the natural rate of unemployment. So, I don't think there's really any reason to move based on the employment part of the mandate. The reason to move is that the policy rate is too high for the amount of inflation that you have in the economy today, and that gives the committee some room to move a little bit closer to neutral than they would otherwise be. And that's the rationale, the resumption of the recalibration campaign that they started last year. So, they came down a hundred basis points in the second half of last year, but coming into this year they wanted to see what happened with tariffs, but now they've got more information. So now you can start to inch the policy rate down closer to the neutral rate. And I would stress that if you think the unemployment rate is at the natural rate. And you think that inflation is, is, you know, trending toward the 2% target. Then you would also want the interest rate to the policy rate to be trending toward the neutral policy rate. And the committee thinks that the neutral policy rate is, according to the dot plot is 3%. Even if you thought it was a little bit higher than that, you’ve still got some ways to go from where the policy rate is today to move it to be consistent with those readings on inflation and the and the labor market.
Room to move on rates 00:09:03.515
So I think that the policy rate is about a hundred twenty-five or so, or, I guess, one-hundred thirty-three basis point above what the committee says is neutral. And, they haven't so far been willing to move up that that long run dot on the neutral policy rate. And it's perfectly fine to argue about where you think that neutral rate is. But most of the members seem to have said that that they still think it's pretty low. And I don't think you need to be as restrictive as they are in order to get the last remnants of inflation out of the economy. And I think the other consideration is that you would like inflation to slowly asymptote into 2%. I don't think you want to overshoot either. Not that they're really at risk of that right now, but you wouldn't want to keep the policy rate too high for too long, because that would possibly lead to an overshoot of your inflation target. And then you get inflation below target.
And…best to move slowly 00:10:16.016
Like, I said. They have room to move lower but maybe not too fast so I think this 50 basis points in the second half of the year is probably about the right prescription.
Skeptical that tariffs cause inflation- 00:11:45.640
yeah, I think that I've been skeptical of the idea that tariffs have very much to do with inflation. I think we've talked about it before. But you can read all kinds of papers and go to all kinds of seminars on monetary policy and monetary theory, and you won't hear any talk at all about tariffs. and you can do that for 30 years. You'll never hear anything about tariffs, because tariffs are a tax, and the taxes are set the way they are. But that doesn't have much to do with actual inflation outcomes. Inflation is up to the monetary policymaker has a lot more to do with credibility and interest, rate policy, and so on. So I have been very skeptical that you'd really see very much from tariffs in the inflation numbers. I understand, you know that. Obviously, this puts upward pressure on some goods prices that are imported goods. But there are a lot of other goods that aren't imported, and the imported goods have to compete with the ones that are domestic. And so surely that's going to change. Consumers are going to substitute away from the imported good, and also the incidence of the tax has to be spread out through the supply chain, and there are many nodes in the supply chain, so I would. I would expect a lot of that to also occur, and also just redirection.
The mechanics of pricing 00:13:17.429
…an importer into the United States, or an exporter into the United States feels like it's just too expensive, and they won't be able to sell their product there, they may take that product and sell it somewhere else. So certainly, that is happening on a global basis as well. So all of these things are going on simultaneously, and it's a little hard to get a read on it. But, I have felt that you know tariffs are at best a one-time increase and probably relatively muted impact on the price level. And therefore, either you won't see very much at all, or even if you do see some that would be only a temporary blip.
Tariffs could open a door to a loss in Fed inflation credibility 00:14:48.171
I do think there's a risk that the US commitment to low and stable inflation would get eroded and then market players would have to take that into account, and they would demand inflation, risk premium in the yield across the Treasury curve because they're not quite sure what the future inflation tolerance will be in the United States, and they're worried about that. So it's all counterproductive. You would end up with a higher level of the poll of the interest rates across the curve. Because if you lost credibility. So we've seen that in many other countries where investors aren't quite as sure as they are in the US. That inflation will remain low and stable, and so they demand higher returns on their investment in government paper. So I think it is a risk. You know, as it stands right now, that's probably relatively minor. But that could get big going forward.
Restricted Treasury security issuance 00:16:41.880 --> 00:16:52.556
Usually the Treasury issues across the curve. They do change the amounts at various points in time, and that's up to the Treasury Debt Management group. But I have never found it to be that influential on markets. If you try to look for supply effects and sort of econometrically speaking, it's hard to find them. And I just think it's such a big market. So global. There's a secondary market. There are other kinds of debt out there. So I think, because of all those factors, I think, the actual Treasury supply has not mattered that much, but I think I admit that these are bigger numbers than what we've seen in the past, and so maybe we'll get a little bit different effects this time around. But I've sort of been burned on worrying about Treasury supply effects.
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.
