Jim Bullard is someone who has long been known for thinking outside the box, and looking at important issues from a different perspective. So I asked him about President Trump pressuring Fed Chair Powell so forcefully to cut interest rates, and asked how bad is this for the Fed? How much does this jeopardize Fed independence? I should not have been surprised by his response.
“I'm one that says that the President is entitled to his opinion on monetary policy and interest rates.” Not exactly an affirmation of Trump’s Fed bashing but an important acknowledgemant the the leader of the free world can question where the U.S central bank is now, and where it is heading next.
And this is what helped lead us to do a two-part interview with Jim Bullard, Dean of Purdue’s Mitch Daniels School of Business, and famouly former president of the Federal Reserve Bank of St. Louis.
In part-one of our interview, also posted today here on my Substack platform, Jim provided his outlook for what the Fed will do - or better said - won’t do at next week’s policy meeting. Spoiler alert: Jim says no rate cut yet, look to September and beyond for the 25 bps moves he sees in the works.
I went on in part-two, presented below (and in the Podcast here), to ask him about the hot topics surrounding the Fed that center on structural issues — questions about the possible need for more Fed policy oversight and other issues around central bank independence at a time where Federal Reserve choices on its building renovations have been making headlines. Unfortunately not good ones
As I did the podcast it grew longer and longer. So we have broken it into two parts. First to make it more digestible but mainly to put a special spotlight on what Jim has to say about all of this. Dive in!
The president is entitled to his opinion- that may put him at risk 00:18:15.700
Well, I'm one that says that the President is entitled to his opinion on monetary policy and interest rates. He certainly had vast experience in his business career and in real estate. All the real estate people I've ever met are always for lower interest rates. So I'm not surprised that he argues in that direction. I do think you have to take into account, Would it be inflationary in the future? I think the President would say that he does not intend that. But markets might have a different view, they might feel like…the U.S. is giving up on having low and stable inflation, and therefore they want an inflation risk premium, and therefore you actually end up with higher. longer term interest rates than you would otherwise have. And so this is all very counterproductive if you think about it that way.
Congress seems happy with its arms length oversight of Fed 00:19:15.822
I would also say the committee operates under the law. And the Congress has looked at the Federal Reserve Act many, many times over the years, and has had opportunities to make changes <but> they have made marginal changes in recent times, but not very big. And that's because they like the committee structure. It's not independent from politics as you and I have talked about. It's really just arm's length from politics. It's just that you don't want to tie day to day monetary policy decision making <it> too closely to the whirlwind inside the Beltway. Because then otherwise political, you know, back and forth would get translated into fluctuations in financial markets, which is totally unnecessary. You don't, you don't really need that. And again, if you had that. you would get a higher risk premium and rates, and higher overall yields than you would otherwise need to have. So I think most politicians are actually very happy with the structure of the Fed. The way it's made by committee
The political influence game…such as it is 00:20:27.873
Politicians and presidents in particular do have influence, but your party has to be in power for a while, so that you make a bunch of appointments, and if you do that, if you can stay in power for a while, then you will get really complete control over the institution. But you have to show your staying power over time. And the other thing about this, I think, is that this is really a story about trying to move up the decision on the President getting to name a Federal Reserve Chair. The President does get to name a Federal Reserve Chair. But it's not a Cabinet level position, a cabinet level position like Treasury or State Department or Department of Defense. Those can be named right after the President comes to power, and as soon as you can get confirmation from the Senate, and so those implement the President's agenda right away. But … then, you know, we don't allow that for the Federal Reserve chair, but we do have some respect for the idea. Well, the President was elected. The President should be able to get his person, his or her person. And so after one year, then yes, you get to name a Federal reserve chair, and that's just to give it a little bit of insulation…
Trump gets a delayed Fed chair turnover: time for a change? 00:21:47.020
Jay Powell's term comes up in May, but the previous Fed chairs were up in February, so Bernanke and Yellen and and Jay <Powell> the first time, or and maybe the second time, or maybe just the 1st time. That was all. In February of the year, one after one year after the President gets elected. So I kind of like that. And I had the impression that that was the implicit consensus inside the beltway, that that that was the appropriate time to allow the President to name a new chair. But this slipped because the Biden administration, maybe intentionally or unintentionally, I'm not quite sure but they let it slip all the way up to May. But I think one thing Congress could do is just say, Okay, we'll amend the act and make sure that the President gets to name somebody at the one year mark of their term. and they could even change the appointment on the Board of Governors. So those are 14-year terms, so you could keep the 6 seats as a 14 year terms, but have the chair seat be a 4-year term that would be aligned with their 4 year term as chair, and then that would give every new President forget about this one.
In the end Congress sets the bar 00:23:58.160
Well, when we say when we say there are norms around this kind of thing… what we mean is that that was sort of an implicit consensus. and if it breaks down now, then, surely the other party would do the same thing when they come to power, and so you'd get closer and closer to the idea that any new President can come in and immediately name a new Fed chair. And so I think, if that is not Congress's intent, and my discussions with members over the years has convinced me it's probably not their intent to allow that, then you could just put it into the law and make it crystal clear that this is the way it works. And you get to name your appointment at the one year mark.|
Fire the Fed chair? A possible new and better protocol 00:24:50.130
The other thing I think about this is that the you know you say, well, you can't fire the fFd chair, but only for cause, and then you bring up this or that. That might be something that fits into the category of cause. But I think another way to do this, and a way the Federal Reserve Act could be refreshed is to say, if you want to get rid of the Fed Chair for policy reasons or other reasons. If you just think it's bad performance, or whatever you go through the impeachment process in the Senate, so the Senate takes a vote and the vote, you know the vote is, hey? The Senate has lost confidence in the Fed chair. We need somebody new. That would be the way that you would approach this issue. So, as I understand it, and I've only limited understanding. But I think judges federally appointed judges are in that category. So you would come in and say, I just think this judge is not doing a good job, and then that would get a vote in the Senate.
More POLICY Oversight could be good for Fed! 00:27:04.470
I think you could <have policy oversight>. I think you could probably devise something. I mean, it would hard. It would be hard to keep it from not being political. So you'd have to design it very carefully. But any organization …you like to have some outside discipline on it, and I think the Fed could benefit from that, just as a corporation is under pressure to produce profits and to produce a good product. And you know they're getting attacked by their competitors. And all this that keeps the organization very sharp, and I think that's probably - probably - beneficial for the the Fed as well, but I think you would have to keep it away from, you know <being> just it's just about interest rates right now or in the next 30 days, or something like that. But the overall management of the organization could be subject to some kind of oversight. I think.
The Fed’s ill-fated renovation 00:29:04.680
It's a little bit a little bit funny to get caught up in expenditures right after the you know a bill where the you had major deficits, as far as the eye can see. But no, I understand the context. I don't think this project has gone well. I think. as I understood it, anyway, and I was not directly involved, but, as I understood it, the historic building next to the Fed became available, and the Fed has, as I understood it, anyway, been renting a building in downtown DC. One of the most expensive places in the country to rent, and those people were far away from the rest of the rest of the team. So they thought, okay, we could renovate this building, and we could get our team closer to us, and we quit paying the rent on the other building. So it all at the beginning I think it all kind of made sense. I did think…Okay, you have to build this tunnel, and you have to raise the whole building. And what about the water table? And what about the asbestos? So I think the best laid plans … can all go wrong. But, I think there was some logic, at the at least at the beginning of the project, that it would have been cost effective. So I'm not quite sure about all the details, because I wasn't directly involved. But that was my general impression when it got started.
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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