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Alongside my co-host, Wharton School finance Professor Jeremy Siegel, I had the opportunity to speak with St. Louis Federal Reserve Bank President James Bullard on our “Behind the Markets” podcast. Bullard is renowned for being a flexible thinker. We’ve spoken to Bullard at times when he was perhaps the most hawkish member of the Federal Open Market Committee (FOMC) and he wanted the committee to raise rates faster than the FOMC was doing. We would describe Bullard now as having the lowest dot for the future trajectory of policy in the infamous dot plots of future Federal Funds Rates. As discussed in past conversations with Bullard, his swing to the dovish side of the spectrum happened because inflationdid not manifest itself after the Fed’s extremely stimulative policies.
Checking in with Bullard on the Current Policy Regime
Low Rates: He still believes we are in a low interest rate regime and that the policy rate is appropriate where it is today. Unlike many of his colleagues at the FOMC, he does not see a need for the Fed Funds Rate to march higher in order to keep unemployment at a low level and inflation under control. Bullard is surprised by how inflation has been running quite low in 2017 and how low inflation expectations are trending.
On Powell: Bullard said Jerome Powell has been a great colleague since he came on as governor to the Federal Reserve System—he has been involved in operational issues, along with regulatory and monetary policy issues. He is a consensus builder and sharp businessperson with a lot of acumen. He has a depth of experience in the capital markets that Federal Reserve chairs Ben Bernanke and Janet Yellen did not possess.
Global Yield Pressures: While Bullard sees the growth picture in the U.S. improving and being robust, he points out that in the global environment we still have negative interest rates in Europe and negative rates in Japan far the yield curve—you have to wonder how far U.S. rates can move up while much of the world has extremely low or even negative rates that seem like they will persist for a while.
