James Bullard, Interview: HSBC Global Emerging Markets Forum

“3.7% unemployment in the US is not the most common thing if you look at the postwar data. If it goes up as the summary of economic projections indicated to something like 4.4%, I would interpret that as just a return to mean of the unemployment rate to something closer to the natural rate of unemployment for the US economy, which is often estimated to be four and a quarter to four and half percent. And of course has wide confidence bonds around those estimates. I don’t think it’s reasonable to expect that you’d stay at 3.7% for a long time into the future.”

“We had to look for the right moment to pull back on our asset purchases. We got that going in the spring of this year and now I want to see how that affects the economy. As you know the academic estimates on this are kind of all over the map and even the market commentary is widespread. It’s kind of a part of the policy that’s hard to assess and we’re obviously focused on the interest rate part of our toolkit right now. I like having the QT going on because I think that’s helping us, but to what degree it’s helping us I think is a good question and something I want to get feedback on from financial markets and elsewhere as we go forward.”

“I think we do pay a lot of attention to inflation expectations and I in particular like the market based measures of inflation expectations that are derived from the TIPS market, also inflation swaps and other methods. I’m pleased that those have come back down under 3%, even under 2.5% for the five year forward. That’s very encouraging from my point of view.”

“A better way to think about it is that we’ve been through a war, George Hall of Yale University and Tom Sargent of NYU have a paper called Financing Three World Wars. And what they meant was World War I, World War II and the pandemic. I think it is like a war in the sense that the national crisis occurs, the government borrow a lot of money to pay for mitigating the crisis and the central bank accommodates that borrowing. But this all makes sense because you’re in a national crisis as we were in especially in March and April of 2020 …  But when the war’s over, you switch back to the pre-war policy of less deficit spending and a monetary authority that concentrates on its inflation target. And that to me is exactly what’s happening both on the fiscal side in US politics and also on the monetary side with the FOMC that you’re switching back to the pre pandemic policy.”