James Bullard, Interview: MarketWatch

Fed Funds

“Yeah. I would refer listeners and viewers to my speech in Louisville last week, which was all about the level of the policy rate that would be sufficiently restrictive. And the answer in that talk, which used tailor type monetary policy rules, was 5 to 7%. So, I do think that the committee at least needs to get into the bottom end of that range in order to be sufficiently restrictive, given the data that we have today. And then, I also think that we’re going to have to continue to pursue our interest rate increases into 2023, and there’s some risk that we’ll have to go even higher than the lower end of that range as we go through 2023, if the inflation data in particular does not cooperate with us. So, I guess I think markets are under pricing a little bit the risk that the FOMC will have to be more aggressive rather than less aggressive, in order to contain the very substantial inflation that we have in the U.S.”

“I think we probably have to stay there all during 2023 and into 2024, given the historical behavior of core PC inflation or Dallas Fed trim, mean inflation. They will come down, I think. That’s my baseline. But they probably won’t come down quite as fast as markets would like and probably the Fed would like. Everybody would like them to come out rather quickly. But that isn’t the historical behavior of these time series.”

Terminal Rate

“Generally speaking, I’ve advocated that sooner is better, that you do want to get to the right level of the policy rate for the current data and the current situation. But I would defer to the chair as to whether how he wants to play the tactics on this. In macroeconomic terms, I’m not so sure that it matters that much, whether it’s we get there, the exactly what date we get there, or what meeting we get there. But the most important thing is this sufficiently restrictive level and that level is well understood by financial markets.”

Inflation

“I do think that the fact that the labor market is so strong gives us license to pursue our disinflationary strategy now, and try to get the inflation under control right now so we don’t replay the 1970s, where the FMC at that time took 15 years to get inflation under control, culminating in the 1981/82 recession, with unemployment at 10.8%. We don’t want to go back to that. We want to get this inflation under control much sooner than they would’ve in the 1970s.”