Former St. Louis Fed Pres. Jim Bullard: The Fed could cut 100 basis points in the next year

I did talk to the Treasury Secretary last week, and he said he was going to be out of the country, but the Wall Street Journal broke the story. I don't know where they got their info, but I did talk to him. We had a brief conversation, and I told him it didn't sound like they had a process locked down yet, but I told him I'd be happy to proceed however they wanted to proceed.

I'll accept the job if we set it up for success, if we can protect the value of the dollar, be the reserve currency, that'll give us lower interest rates over time. If we aim for low and stable inflation, and if we can respect the independence of the institution under the Federal Reserve Act. If you want to change the Federal Reserve Act, that's a matter for Congress. Congress has looked at it a lot. They like it the way it is basically. So I think work within the institutional structure, do the things that we have to do to keep inflation low and stable and keep the inflation risk premium out of interest rates. If we get an inflation risk premium in there, then we have to pay higher interest rates all the time than we otherwise would. So that's the basic case that I would make. And am I a hawk or dove? I think what I've learned in this is don't be dogmatic because situations change.

Yeah, I think the committee put their rate cut program on pause when the tariff situation arose six months ago, and now you have six months of evidence. I don't really think tariffs cause inflation. Taxes don't cause inflation. So what you're seeing in the data is very muted effects that are one-time increases in the price level. You're not really seeing anything, and the committee's coming around to the view that this is probably a one-time increase in the price level and is not interrupting the longer term trend toward 2% inflation. So they're ready to come down. I think they'll cut here in September, probably again later in the year. And as I said last time, I think you could continue that into next year. So you probably get 100 basis points by this time next year, and then you'd be close to the neutral policy rate. That's a good place to be if unemployment's in the little 4% range and you get inflation coming back to 2%.

Well, I think you have to, if you're going to accept, you have to say, 'I'll accept, but we have to set this up for success, not for failure. If you want somebody to come into the job and fail, get somebody else.' I think anybody on this list would insist on that before they would take this job. So, am I willing to raise rates? I was one of the ringleaders in 2022, and we raised the policy rate 75 basis points four meetings in a row.