James Bullard: 'All Meetings Are Live Meetings' For Policy MoveVW Staff
St. Louis Federal Reserve President James Bullard spoke with Bloomberg Radio's Kathleen Hays today on Bloomberg Radio & Television. While Bullard said he “didn’t want to prejudge” whether the committee could act in April, the St. Louis Fed official said last month’s employment report showed “continuing improvement” in the labor market.
James Bullard said the Fed reserves the right to change policy at any time: “Not only have we moved at all kinds of different meetings, we've actually had inter-meeting meetings, special meetings, and moved at those meetings. So you can do a lot of things. You know, I'm not saying we're I'm planning on that or anything, but the Committee certainly reserves the right to make a move at any time… We debate at all meetings. I think all meetings are live meetings. There's no other way to think about it.”
On what is most important to him right now, he said: “I have been concerned about inflation expectations…Now, they have recovered probably back to December levels. And I find that comforting. But you'd actually like to see those numbers even somewhat higher than they are today. And because they reflect somehow the credibility of the Fed and its ability to hit a long run inflation target of 2 percent.”
Bullard said a growth slowdown in the first quarter could weigh on the central bank’s plan to raise interest rates gradually: “Growth has been somewhat tepid, first quarter growth. Tracking forecasts are now being marked down…It's fair that there hasn't been all that much data since the March meeting and it has not — you know, it's been mixed in various ways, so, you could draw your own conclusion from that.”
James Bullard Reads Into the Fed's Tea Leaves:
James Bullard on the U.S. Economy, Dollar, Inflation:
KATHLEEN HAYS: I'd like to welcome our Bloomberg television audience to our Bloomberg Radio interview with Jim Bullard, president of the Federal Reserve Bank of St. Louis. Thanks for having us back.
James Bullard: Thanks for coming today, to the Homer Jones Lecture.
HAYS: I know. We'll talk about that later, because I'm really curious if Homer Jones might be rolling over in his grave over some of the things going on at the Fed these days.
But Jim, breaking news from the Fed, maybe not a big surprise here. There was a heated debate at the meeting in the middle of March about whether to move on rates or not. Some people, I think, are a little bit surprised that the push to maybe make the rate hike was still as heated as it was.
What does it tell us about the potential debate at the April meeting, at the end of this month?
James Bullard: Did the minutes say it was heated?
HAYS: Well, we are looking at a back and forth.
James Bullard: I see.
HAYS: I mean some people wanted to meet. So you guys just showed up and left. But you didn't all agree.
James Bullard: Well, of course, people are passionate about their positions and they should be. These are hard decisions to make and they bring their views to the table. And, you know, I don't think we actually get that much out of the minutes compared to what you just read in interviews and speeches that people give.
You pretty much know everybody's view and so the, you know, the same types of arguments are made at the meeting. And it goes both ways. People cite different data and so on and have different interpretations of current events, so…
HAYS: Well, there's a lot of concern about the impact of the global market turmoil on the economy. There was debate over inflation, were temporary factors boosting core inflation or not?
But you're right, since the March minutes, there were some important data points. You, for example, said, just a couple of weeks ago, that a strong April jobs report could make the case for a move in April.
Now, we got the April jobs report. Good payrolls. The Participation Rate rose. But we saw that the average weekly hours did not rebound. There is a concern about the aggregate hours work and the signal they're sending about the strength of the economy.
What is your view on that report?
Is it strong enough to make the case when you go to the — when you go to Washington in April in a couple of weeks?
James Bullard: I thought it was a good report, but it's consistent with a long string of pretty good reports. Labor markets, I think, there's continuing improvement, even blips one way or another, I think, are maybe relatively minor. I think it's you're basically seeing, you know, steady improvement in the U.S. labor markets.
I think the issue is probably growth more than — more than labor markets. And growth has been somewhat tepid, first quarter growth. Tracking forecasts are now being marked down. How much of that is residual seasonality, I think that will be a good topic for the April meeting.
HAYS: As a matter of fact Atlanta said GDP tracking estimates now down to like 0.5.
James Bullard: Yes.
HAYS: It had been well over 2 percent just about a month ago.
James Bullard: But you've got this first quarter puzzle where the first quarter always seems to be weaker and a — and if you do a seasonality analysis, you'll get, you know, extra seasonality in the first quarter.
So what the heck is going on?
I think that's a good question.
HAYS: Is it fair to say though, that with the doubt over the strength of GDP in the first quarter and what kind of footing is this?
Because you — if you get to — if you're on 2 to 2.5 percent growth, you do not want to see first quarter GDP under 1 percent.
James Bullard: It's very tough, yes.
So does this mean that all things considered, this meeting is not one where there's going to be an — a debate over the April increase as much as a debate over the June increase?
James Bullard: Well, I don't want to prejudge the meeting. We'll — we'll see how people feel when they come into the meeting and how they suss the data. I mean it's — it's fair that there hasn't been all that much data since the March meeting and it has not — you know, it's been mixed in various ways, so, uh, you know, you could draw your own conclusion from that.
But — but I kind of don't want to be in the business of trying to predict what the Committee may or may not do at the meeting.
HAYS: But what are — but what are — what is — what is your sense, Jim?
Because it seems to me you are someone who was — who would have been ready to make the case for April?
But I — I really am curious if — if this is something that you'd say something has shifted and now this — this — this appropriate go slowly strategy that Janet Yellen described so well a couple of weeks ago, just last week at the New York Economics Club, that this is something that — that slows you down even more.
James Bullard: Yes. I mean the Committee has had a glow — go slow strategy, you know, even before the — the first rate hike in December. We said repeatedly that it would be gradual and it would be data dependent. And I think we're — we're trying to follow through on that in a — in an appropriate way.
So in a way, this is all kind of, you know, hair splitting as to well, what does gradual really mean and it, you know, exactly how fast?
And, you know, of course that's very important to — to financial markets.
But — but I think we've been very consistent in saying that we — you know, we want to go slow, we want to be data dependent. And that's one reason I don't want to really, you know, try to predict, you know, exactly when the Committee will go.
You want to wait for data to accumulate and let the meeting unfold as appropriate. And, you know, I think that's where we are.
HAYS: So what's most important to you right now?
What are you watching?
Is it inflation, inflation expectations?
Is it the payrolls?
James Bullard: Well, as you know, I've been — I have been concerned about inflation expectations. And when I talked in mid-February especially, you had the five year, five year forward tip space inflation measures down below 1.5 percent. That got me, you know, kind of nervous and I — and I started to flag those.
Now, they have recovered probably back to December levels. And I find that comforting. But you'd actually like to see those numbers even somewhat higher than they are today. And because they reflect somehow the credibility of the Fed and its ability to hit a long run inflation target of 2 percent.
HAYS: OK. But you're still watching the PCE over the regular CPI.
James Bullard: Yes. The inflation themselves have been stronger. The year-over-year inflation numbers have been stronger, PC core at 1.7 percent. So it's definitely coming up toward the 2 percent target just as the Committee predicted. So this is one of the cross-currents here. You've got slow growth, but you do seem to get inflation moving back toward target.
HAYS: All right. Well, we're going to continue our conversation with Jim Bullard.
He's president of the Federal Reserve Bank of St. Louis.
We're here in St. Louis.
Today is the Homer Jones Memorial Lecture, being awarded to Larry Summers. He's the U.S. — the former U.S. the Treasury secretary.
I'm Kathleen Hays.
This is TAKING STOCK on Bloomberg Radio and Television.
More with Jim Bullard from the St. Louis Fed coming right up.
MASSAR: All right, Kathleen. We're looking forward to more of that conversation.
Still ahead on BLOOMBERG MARKETS, as we mentioned, of course, we're going to head back to St. Louis, find out when the Fed's James Bullard forecasts the next rate hike. They've been talking about that issue. Kathleen obviously digging into some of the details in terms of his thinking about Fed policy.
This is BLOOMBERG MARKETS.
MASSAR: We are going to head back to St. Louis in just a moment.
Joe Wiesenthal will be sticking with us, but we're going to head back to Bloomberg's Kathleen Hays with St. Louis Fed President Jim Bullard, so she can continue her conversation.
We're talking Fed on this Wednesday — Kathleen.
HAYS: Thank you so very much.
I want to welcome back all our viewers from Bloomberg Television for our very special interview with Jim Bullard, president of the Federal Reserve Bank of St. Louis, here today for the Homer Jones Memorial Lecture later today.
So, Jim, I want to get back to this — this — the slowdown in GDP.
James Bullard: OK.
HAYS: You have a 2.5 — 2 to 2.5 percent GDP forecast.
Is there any concern on your part that the economy has stalled out a bit early in the year?
James Bullard: I wouldn't be inclined to give it that interpretation at this point, especially with the fairly strong jobs reports that we've had. So probably it's, again, residual uncertainty or residual seasonality in the — in the first quarter of the year, which we've seen quite a bit over the last 20 years and if it's like past years, that will be made up, you know, in later quarters.
HAYS: How does the global economy look to you now and what — what — how — how strongly now do you assess that and what indicators do you watch most closely?
Obviously, that's become a much, much more important factor for the Fed, and more explicitly a — a target for the Fed.
James Bullard: It's — I don't think it's been, you know, I have not added to my weight on global factors compared to what I had before. I haven't really seen anything that would indicate to me that this is particularly salient at this point compared to what it's been over the last several years.
You know, you could talk about China risk, but we live with China risk every day. You could talk about the dollar, but the dollar, year-over-year, is, you know, about where it's been, you know, about 0.
So there certainly was a big move in the dollar in the second half of 2014 and those effects do ripple through the U.S. economy. But those are fading effects at this point.
So our bet has been that as those effects fade and as the effects of the big decline in oil prices, again, in the second half of 2014, as those fade away, that inflation will go back to target. And that's, in fact, exactly what's been happening.
HAYS: So Jim, if the jobs reports remain strong, can the Fed — would you urge a rate hike at any meeting — April, June, whichever one it might be, if inflation expectations are still low?
James Bullard: They're low, but they're — they're the same as they were at the December meeting. I think if I felt confident that they were going to head higher and that inflation itself was going to head higher, then I'd be happy to advocate for a rate increase.
HAYS: And how would you gauge that?
Just — it would be like the model suggesting that would happen?
James Bullard: Yes. I'll have to assess the situation when we get to the — get to that point.
HAYS: So what are you looking for in terms of in — inflation more broadly
I wonder if you could get to that point where you can say that's it, time to hit the bid, inflation is strong enough?
James Bullard: Inflation is moving up. A lot of these measures are core measures now are, you know, of course CPI, year-over-year, is above 2 percent. SPCI price CPI above 2 percent. The Dallas Fed trend means moved up close to 2 percent. PCE core inflation, 1.7 percent.
So that's a collection of indicators. All of those are moving up.
So I think we are going to see higher inflation going forward and it's not that those are such bad numbers. They're close to 2 percent. But that's in the context of a policy rate that is still very close to 0.
So I think the idea has been that as we — as we continue to see stronger price movements, that we should probably, you know, continue to normalize the — the policy rates.
HAYS: A lot more focus — I guess that's why I'm thinking of Homer Jones. You know, we've got forward guidance, we've got Dot Plus, we've got markets responding to the Fed and the Fed responding to the markets, Janet Yellen noting that the markets had acted as an auto — auto stabilizer, kind of, when the Fed was looking for four rate increases, cut back to two.
A weak global economy and that the market reaction provided some extra stimulus.
Does that concern you, that at a time when the Fed has now got the dot plot saying 200th straight increase, the market is just looking for one this year?
Is there still a disconnect between the markets and what the Fed intends and what the Fed is trying to communicate?
James Bullard: Yes, there's been a long time disconnect and I have been worried. I've said so on Bloomberg many times, that I'm worried that that gets reconciled in some kind of violent way where there's a lot of turmoil caused in markets because of changing expectations of what the Fed is going to do
So I think the Committee gives its best assessment in that dot plot of what they think is going to happen and — and where they think the policy rate is going to go. It's not clear to me why the pricing should be very different from that, unless markets have a much more pessimistic view of the U.S. economy, which is certainly something you could — you could have.
But if you look at the forecasts in the private sector of how the economy is going to evolve, those aren't, you know, materially different from what the Fed thinks.
So — so I'm not quite sure why — why we need to have this — this, you know, constant sort of disconnect.
HAYS: A simple kind of language question. People talk about a live meeting and if you talk about a live meeting, markets seem to think, oh, I'm going to argue for an interest rate increase. Markets have said can't move it when there's no press conference.
Should the markets understand now that the Fed saying there's — it's a live meeting, that they look at April or June or any meeting, it simply means that it's within their purview to make a rate move regardless of whether or not there's a press conference, that the Fed can actually move, just call a press conference last minute.
Is that what people should be understanding right now?
Is that within the Fed's capabilities?
James Bullard: Well, of course it's within the Fed's capabilities. Not only have we moved at all kinds of different meetings, we've actually had inter-meeting meetings, special meetings, and moved at those meetings. So you can do a lot of things. You know, I'm not saying we're going to — you know, I'm planning on that or anything, but the Committee certainly reserves the right to make a move at any time.
HAYS: And a live meeting is just a meeting where you can debate, is that right?
James Bullard: Well, we debate at all meetings. I think all meetings are live meetings. There's no other way to think about it.
HAYS: OK. I just want to make it clear. I think people think if you say it's a live meeting, it means you're going to go in and push for a rate hike.
James Bullard: Ah.
HAYS: Well, we're going to continue this conversation with Jim Bullard.
We're live at the Federal Reserve Bank of St. Louis.
We're going to continue on Bloomberg Radio to ask him more about dot plots, changes at the Fed, the global economy, the role of markets and where he sees the economy heading, not just in the U.S., but around the world.