James Bullard, Speech: Barclays-CEPR International Monetary Policy Forum

“These levels of inflation are similar to levels that you would have seen in the 1970s or early 1980s, so this is something we have not experienced since the days of Paul Volker. And the problem with the 70’s was not just that there was a tolerance for high inflation, but hat the inflation was volatile and the real economy was also volatile with four recessions in 13 years culminating in the 1982 recession, which sent unemployment all the way to 10.8% in the U.S. at the peak. So this is a serious problem and we need to be sure that we respond to it appropriately and not replay the very volatile era of the 1970s.”

“On the labor side of our mandate, we’re doing very well. The unemployment rate in the U.S. is 3.7% … Even is inflation was at 2% and you had ordinary monetary policy going on, you would still expect the unemployment rate to return to its natural level (approximately 4.4%) and that would be higher than what it is today.”

“The committee benefited from market pricing, much of which was engineered by people in this room and the market pricing moved well ahead of the Fed’s actual moves. So, it looks like we didn’t do anything until March of 2022, but actually indications were in play far before that and have continued to push market pricing through the spring and through the summer … So, this market pricing leading the Fed is the benefit of the modern era of forward guidance and transparency and has helped us enormously so far during this episode.”
“I would say though, among the yield curve predictions, yield curves are inverted in many places around the world and certainly in the U.S. I think these yield curve predictions are valuable in certain circumstances and I’ve emphasized them in the past, however in this particular situation I don’t think they are quite what people think they are.”

“I think that this is actually good news for the U.S. economy that inflation expectations in markets, TIPS based inflation expectations are below 3% and in ranges consistent with inflation returning to 2% and so that’s good news. Thank you for the confidence in our policy, however markets have often been wrong and we’ve often been wrong, so we won’t believe it till we see it. For now, I think it is encouraging that inflation expectations are in the right place.”

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