Former St. Louis Fed Pres. Bullard: The Fed is probably reluctant to move too much from here

I think the committee is in pretty good shape right now. On the labor side, I would stress, Joe, that you've got to take the immigration policy into effect. Some of the estimates that I've seen around the Fed and elsewhere suggest that the run rate with the new immigration policy that the US has starting last year, the new run rate for non-farm payrolls would only be 30 to 50,000 or something like that. So when you get a number like 70,000, you're actually above the run rate. I don't think the market has completely brought that online in their thinking. We're used to thinking 150,000 jobs or something like that. So I think that's been tough. We didn't have this immigration policy before, so it's all different.

I think that's why the labor market on other indicators seems fine. Unemployment insurance claims, for instance, are very stable and very low. So there doesn't seem to be any problem on that side. Even the 4.6% unemployment rate is close to what most people would say is the neutral rate or the natural rate of unemployment, mid 4% range. Pretty good outcomes there. Inflation is hanging up a little bit high. The committee wants to stay a little bit above the neutral policy rate to try to continue to push inflation down. If inflation does continue to come down during 2026, then they'll have a little room to maneuver, not a lot farther, I think. Right now they're in a good place and they're probably reluctant to move too much from here without seeing more data.

Some of it might be AI related on both sides of the dual mandate. Some of the reason that companies may not be hiring as much but aren't laying people off as much could be AI related. And then obviously productivity and inflation. Remember what happened to inflation the first time around with the internet. It tamped down inflation. The long-term effects of the new world is a famous episode in US monetary policy. Alan Greenspan said we've got a productivity boom going on, and we could be on the cusp of that once more. The late 90s is a good benchmark. We're not exactly like that, but it's a good benchmark to think about. When you think about how the internet permeated through the whole economy, it did drive productivity even though you couldn't point to particular examples that suddenly did something noticeable. It permeates the whole economy, and that's where the productivity gains come from. The productivity numbers have been good for the last two years and look like they'll probably be good for this year too. That's pretty good news for the US economy.

I think the way to think about this, it's great to look at macroeconomic history and try to infer things, but this time was a little bit different. You had this gigantic pandemic and then a very rapid recovery from that pandemic, which drove the unemployment rate way down into the 3% range. The 3% numbers are kind of abnormal for the US economy. Then that all settled down, and now you're in the 4% range, which maybe is closer to the natural rate.

It's a bit of a mixed message. I think this pro-business administration has done a lot of good things, and we're looking pretty good for growth. They don't really need the lower interest rates, and they don't need to take the risk that inflation would reignite. That would be very troublesome for the economy, for markets, and politically. So you want to be guarding against that and let the economy run because it's running pretty well.