James Bullard, Speech: Disinflation, Progress and Prospects, Greater Jackson Chamber

Presentation

Fed Funds

“Continued policy rate increases can help lock in a disinflationary trend during 2023, even with ongoing growth and strong labor markets, by keeping inflation expectations low.”

Speech/Interview Transcript

GDP

“3% is a good number for real GDP growth. A long run trend growth rate for the US economy is only 2%. So 3% average over the second half. Again, these numbers have been talked down a little bit, but I’m not sure that that’s all that convincing. If you look at the year-over-year growth instead of the quarterly growth, that is slowing.”

Jobs

“Labor market performance does remain strong. We’ve got the number of job openings per unemployed worker still around two, it’s about 1.9 right now. So this has been really indicative of what you all are telling me and what people are telling me across the country and across the district that labor markets remain very tight.”

Inflation

“Now, I think the disinflationary process has started. Inflation is too high, but it’s declined recently … It’s specified in terms of headline inflation of personal consumption expenditures. Headline has gone down, but it can be influenced by energy and food prices. If you strip out those volatile components, you’ll still get a picture that says inflation has come down.”

Fiscal Stimulus: “Was it inflationary? I don’t think that the initial phase was inflationary. However, Congress came back later in December of 2020 with a major package. Both parties agreed because they wanted to be competitive in the Georgia elections and then again in March of 2021, and that’s when inflation went up a lot. Those were outsized moves and they were tied to political events and less to economic events. So I think that was a factor. So that led to, among other things, very rapid M2 growth, for those of you that are monetary in the group here, and ended up leading to a lot of inflation.”

Inflation Expectations

“We’re back to where we were in the first quarter of 2021. So we’re back to where we were two years ago, in terms of inflation expectations. And that’s because the Fed was so aggressive during 2022. We convinced everybody and hopefully you, but in financial markets, we convinced people that we are going to keep inflation under control and we are going to get back to our 2% inflation targets. So this is very encouraging from the point of view that our policy is having the right impact.”

Forecasts

“Well, the economy’s growing faster than we thought. Labor market performance does remain robust. Unemployment’s below its longer run natural level. So you would think what would happen is the economy, GDP growth would moderate from what it was in the second half of 2022, it would now come down, and unemployment, which is really, really low right now would probably go up to a more natural level that would balance supply and demand and that would be a natural forecast to make. And that is consistent with what the fed’s been saying.”

“And then I think we can lock in the disinflationary trend that we have. We can lock that in with further rate increases even though we have ongoing growth and strong labor markets. But we’re keeping inflation expectations low, which I think will help us to eventually get back to a 2% inflation target.”