An Interview With The Fed’s James Bullard

On last week’s “Behind the Markets” podcast, Jeremy Schwartz and Professor Jeremy Siegel interviewed James Bullard, president and CEO of the Federal Reserve (Fed) Bank of St. Louis. Despite the recent spate of better-than-expected U.S. economic data, Bullard did not back down from advocating a 50-basis point (bps) cut in the Federal Funds rate at the Fed’s last policy meeting, dissenting from the majority decision to lower just 25 basis points. He maintained that the increased uncertainty about U.S. trade policy has had a significant effect on foreign economies and impacted business decisions in the U.S. In fact, during our interview, the Dow Jones Industrial Average fell 200 points in response to news that Chinese negotiators had withdrawn from recent trade negotiations.

Further supporting his dissent, Bullard said, “We just have to face up to the idea it is an extremely low interest-rate environment globally and U.S. yields can’t get too out of line from those global yields, even though our economy is somewhat better than some other places in the world.” I concurred, noting that although U.S. growth rates are about 1% above those in Europe, our interest rates, relative to inflation, are 2% to 3% higher. Bullard agreed that the “neutral Fed funds rate,” the funds rate that is neither expansionary nor contractionary, might be below the new 1.75% to 2.00% range set last Wednesday.

Bullard agreed that the term structure was the best single indicator of a recession in the post-war period. He reiterated that he had been “fooled” twice during his tenure on the Federal Open Market Committee (FOMC) by presentations from Fed research staff saying that inversion of the term structure did not presage recession. He vowed not to be fooled again.

When I pointed out that the “dot plot” indicated that ten of the 17 FOMC members did not want any further cuts, he said those indications were made before the meeting and that dot plot convictions were not written in stone. Bullard dismissed suggestions that Trump’s vociferous push for lower rates might have sparked resistance by some members who would have otherwise been more receptive to such easing. “We almost never talk about politics,” he stated, and you can confirm this by listening to the transcripts of the meetings (which are released five years later).

1 2 3
View single page >> |

Disclaimer: Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds before investing. U.S. investors only: To obtain a prospectus containing this ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.