Bloomberg Audio Studios, podcasts, radio, news. Joining us now is someone who is very familiar with these types of speeches. St. Louis Fed President James Bullard, who recently was in the media talking about his preference for 100 basis points of rate cuts this year heading into 2026. Also potential contender, I should say, to be the next Fed chair. James, Jim, how much are you seeing what we heard from Fed Chair Jay Powell and seeing anything different that you would really say if you were at that podium?
He used the speech to solidify expectations for 25 basis points in September. I was expecting that anyway. Markets were expecting that. He leaned into the most recent labor market report which was very soft. So I think that's a done deal. He didn't say too much about beyond that, what you want to do at the October meeting or the December meeting. I have said 100 basis points going into 2026. So I think you could adjust as you go forward and eventually get a full 100 basis points, but I would go slowly in order to watch the data. And on the framework review, I'm sure much earlier in the year they had targeted that they would have the framework discussion and that they would use the Jackson Hole speech to talk about changes to the framework. I thought those were thoughtful and well presented in this speech, and they're about what many have speculated on. So I think they did about as much as they could on the framework side.
I don't know. I just can't talk.
Jim Bullard, Tom Keene, good morning to you. I definitely consider this my conversation of the day. You served a lengthy term at the St. Louis Fed. You have lived the decline of a greater economy decades and decades ago in the effort to provide for a resurgence. St. Louis is a next chairman of the Fed, whoever that may be, do they have to manage for two American economies: a technology-driven exceptional economy and another, to use a cliche, America flat on their back? How would a chairman execute those two Americas?
Just everything all the way around. Yeah, I think income and wealth distribution have become more salient topics for the Fed. It's not that clear how much the Fed can really do. Providing interest rate policy for the whole economy, if you change the rate structure that affects everyone, not just one particular group that you might be targeting. So I think that's been something we've had to wrestle with, and I've actually done research on it myself to try to understand it better from my point of view. So I think this has been a theme for a while and that'll be an important theme in macroeconomics going forward.
Mike McKeon has got a lot of smarter questions than me on the immediacy of this speech. I'm going to ask one more distant question. And Jim Bullard, you're at Purdue executing online technology education every single day. How do you define the new technology productivity that America faces? Is it enough to save us? Is it enough to really add on to our present GDP?
Oh, yeah. I think that the AI boom is a general purpose technology that will diffuse through the economy. I think the key question is how fast does that actually diffuse. Sometimes markets can get ahead of themselves and think it's going to happen sooner. Sometimes they're too late and it happens faster than markets think. But nevertheless, any way you look at it, it's an important technology. It can drive productivity, and I think in higher education is one of the places where you can really have the biggest impact. We put an AI requirement in at the Daniels School here for every single student and we're trying to expand that to all of Purdue. So I think that just shows you how important this technology is.
Jim, it's Mike McKeon. I have a question about sort of the process involved in this speech. The chairman is giving his own speech, but basically when he says it's time to maybe adjust policy, he's speaking for the entire open market committee. Going into a speech like this, would he have polled everybody? Does he think he has the votes for that? Because we've been speaking with Fed officials here in Jackson Hole and there are still some who are saying, 'Well, we're not sure that we need to do that yet.'
He's going to report on the center of gravity of the committee even though there might be people that have misgivings. At the June meeting, the committee had a median dot plot of two rate reductions by the end of the year. And I think the minutes suggested something that was more like 50/50, but then the labor market report came in. I think that tilted the balance. So he could have pushed back a little bit. I think financial markets were expecting him to come be a little bit more hawkish here and try to set up a 50/50 meeting where you would wait and see for the rest of the data to come in. But I don't think that's where the center of gravity is on the committee. So he went ahead and leaned in. I thought there was quite a bit of talk about the labor market at the beginning. You could have been a little more emphasis on the low unemployment rate for instance, and he did come out at the end of that discussion saying well it's in balance but we're a little bit nervous. So I think he's accurately describing where the bulk of the committee is.
Well, where would you be on this question? Because we've heard Fed officials for some time now saying we had poor job creation in recent months but the unemployment rate as you just mentioned has been low and they've described the labor market as solid. Now this seems to be a major shift in the way they view the outlook and the balance between the two mandates.
What he did at the end of that discussion, he said well it's in balance. But I think the committee's nervous. I think it has been slowing. And I think the policy rate is moderately restrictive, maybe 125 basis points above the neutral rate. Is that really where you want to be in this circumstance? I think the answer is no. So you can come down some and still have moderately restrictive monetary policy that puts gentle downward pressure on inflation. And the other thing I think has happened is that this argument from Chris Waller and others on the committee that you should look through the one-time increase in goods prices coming from tariffs, I think that's carrying the day. And then he emphasized that inflation expectations remain anchored and so on. So I think that sets up a modest move downward in September.
Jim, we've been talking with you for years and you are very focused on the discipline of economics. Right now, I'm looking at the headlines that are crossing from the past hour. The top one, of course, is Jerome Powell, Fed Chair, saying that shifting risks may warrant adjusting rates. The second one is that Trump says that he'll fire the Fed's Lisa Cook if she doesn't resign. As someone who is thought to be a contender to become the next Fed chair, Jim, how much does it concern you that there's this increasing political noise around the seat and exactly what the path of policy forward looks like?
I want to see due process around something like this. I want to see, you can make charges against anybody about anything, I guess, and the person can answer the charges and the DOJ can decide what they want to do and so on. So I think this should have longer to play out before you took that step. Otherwise, it's just kind of the wild west and she could get reinstated later, I guess, if there wasn't a conviction. So seems messy to me. I think these kinds of charges are made from time to time against various officials around Washington, but I'd like to see due process there.
Jim, there's another question here aside from Governor Cook and what happens there about how the perception of political interference handles the market reaction to Fed policy. There is this perception that that could cause the dollar to weaken more because there is more of an emphasis on supporting growth and supporting the labor market than containing inflation. And some people are worried that if the Fed does cut by 50, 75, 100 basis points as you were talking about this past week, that you could see a move up in long-end yields akin to what we saw last year. If you were on the Fed currently and you did see yields along the long end moving up in response to near-term Fed rate cuts, what would you do?
Well, that would definitely be a concern and that's the tricky part of this business. You think you're pursuing a dovish policy at the short end but the long end goes up because inflation expectations start to rise, markets start to lose confidence in the Fed and the credibility of the Fed, and that can go very badly and unfortunately fairly quickly. So I think you do have to be careful here. But I'm saying that I think the committee has room to maneuver if they proceed carefully over the remainder of 2025 and the first half of 2026.
I don't want to get out front of the debate here or the moment, Jim Bullard, but what I would say to Chairman Bullard and Mike McKeon, I got to turn to you. You and I used to sit and look at the dots and go which one is Bullard? I mean, you and I have done it.
It's fairly easy after a while to figure out and I know Jim would probably agree that Chairman Bullard's first act if you take over the Fed is to get rid of the dots.
Yeah, I've threatened to, while I was president, I threatened to withdraw from the dot plot. I think this could be done better. This was discussed at the framework conference and former Chair Bernanke gave a very nice presentation and talk about a quarterly monetary policy report, get more organized about it, put out a forecast. I think all of that could be done. I've advocated that for a long time and so I think that would clear up some of the misconceptions around the dot plot.
Okay, this is really important folks. Jim Bullard made economic history I would say a decade ago with a small short paper forceful on regime change. How do we get a new Fed away from the guessing and the certitude and the silly parlor game of it? Jim Bullard with great respect, how do we get to that more disciplined study around the game of the Fed and regime change?
