Welcome to Central Bank Central. I'm Kathleen Hayes, joining you in Washington D.C. at the spring meeting of the Shadow Open Market Committee. I'm going to be very happy to speak with Jim Bullard now. He is the former president of the Federal Reserve Bank of St. Louis. Importantly, he is the Dean of the Daniels School of Business at Purdue University since 2023. Been a lot of work done. Maybe we'll talk a little bit about that before this is over as you rebuild that school. What an exciting project you're doing. Importantly though, you were many years on the Federal Reserve, on the Federal Open Market Committee with Charles Plosser, and that is who is being honored today. I had the privilege of meeting him first back when he became president of the Federal Reserve Bank of Philadelphia in the 1980s, I believe we were. And of course Charles is known for so much work he did on the Fed's framework, how policy works, etc. I want to start though with inflation in this sense. We've got a report out today. It was not surprisingly, you got a what, 0.9 on the month gain. The year-over-year inflation rate's now 3.3%. And yes, it's a war, and yes, it's energy prices, but guess what? 5 years now of the Fed overshooting its 2% inflation target. Now, Charlie was observing this before he left us, but what do you think he'd say now about this big picture question of inflation?
Well, he would certainly advocate to get inflation back to the 2% target to maintain Fed credibility. I do think it's concerning that the committee's preferred measure, which is core PCE inflation measured from one year earlier, that number has gone back above 3%, so it's pretty flat out. And it really hasn't, the committee hasn't made any progress on that particular metric for the last two years. So, it's going in the wrong direction. It's still, you know, a percentage point above target. So, and that's all pre-war. So, and that all anyway that looks through energy price movements. So, I think that's a concern. I think the committee will have to get a little bit tougher on inflation because of that.
Well, let's talk a little bit more about the inflation report itself. And we can get more about that tougher about the inflation, but again, 3.3% on the headline. The CPI. Yeah. Yes, on the headline CPI. It's a, do you think there's any, is it possible then even so, look, the war started. We don't know how long it's going to last. We know energy prices up. Is it really all an energy price story now, or do you think it's becoming bigger than just an energy price story, Jim?
So far I don't think it's becoming bigger than an energy price story, but because it hasn't gone on for long enough and the price of gasoline hasn't gone up far enough even though it's gone up a lot. You know, the US economy had $100 oil from let's say 2011 to 2014 or so if you look at the time series and flirted with $100 all through that period, and that wasn't enough to put the US into recession at the time. So, I think you'd have to go to higher numbers. I think what people are really more concerned about is if you really do try to take 13% of world daily oil consumption totally off the market, if that's what happens, then you will see much higher oil prices. But it's not clear to me that that's going to happen. You'd have, what you would have to do that is, you know, countries would be sacrificing their revenue that they would otherwise get. That usually doesn't happen in markets. So, we'll see. We'll see, but so far so, you know, I think that obviously gas prices are a lot up, but it's not clear how sustainable that is.
And it's not clear. You're saying it, do you think the impact on the economy, on growth, that's the other side of this economy coin, is going to be mostly dependent on just how long this lasts?
You know, I think it's, I guess what I've said about this is like we should worry more about the inflation side of this problem than the growth side. So, on the growth side as I was just saying, we had $100 oil in the past, relatively recent past, and that didn't cause a recession, and even higher levels probably wouldn't cause a recession. The energy intensity of the US is much lower than it once was. It's lower even than it was, you know, a decade ago. So, and that's just shift to services. It's more of a service-oriented economy, less of a manufacturing economy than it once was. And so I think these kinds of things, also energy sufficiency in the US that makes a big difference. So, I think it's a different world than it was in the 1970s as far as recessions and oil.
Rate hike, that's what we're hearing a bit more, right? Or that could be, and then for the longest time that was just not on the table at all. But more recently, more people are saying this is what may have to happen. What would Jim Bullard have to see to think that, say you're sitting back there on the FOMC again as you were for so many years?
Well, I think if core PCE inflation continues to trend in the wrong direction, and again, they're looking at that measured from a year earlier, so you're smoothing that out quite a bit. You're looking through food and energy. And if that thing is, you know, drifting up, that is not a good sign, and that's not what the committee was expecting. And I think if that goes too much further, the committee will have to start thinking about maybe, you know, maybe raising policy rates.
A question I'm asking everybody these days, especially former Fed officials, is, you know, it seemed to me that when the president nominated Kevin Warsh who was on the Federal Open Market Committee and Board of Governors, everybody said, 'Oh, well of course Trump appointed nominated him. He's going to go right ahead and cut rates.' But it seems to me that's been the prejudice against every single person who was nominated. You certainly have known Kevin Warsh over the years. I'm not necessarily asking you to comment on him in particular, but do you think the public, do you think the markets have been just a little too quick to assume because this, this not list of nominees, Kevin won the prize so far, don't understand that maybe first of all it's very complicated. It's a big group of people making these decisions. How do you respond to that?
I think that the committee already lowered the policy rate 75 basis points last year on top of earlier moves that they had made. And so in some ways the, you know, the work's already been done by the time Kevin Warsh actually takes the chair and takes over the committee. So, I think he can cite that. Usually people would say that they're waiting to see the effects of that before they make additional moves. And that's why a lot of people on the committee are saying why don't we just stand, wait and see what, and see how the war plays out, and then we'll make decisions from there. So, in a lot of ways the work's already been done.
So, you are on the panel at this spring meeting of the Shadow Open Market Committee that is looking at the Fed's statutory and policy framework. To get back to Charlie Plosser for a minute, what did he bring to that table while in his years at the Fed? And again, years for a long time you sat at the same table with him.
Yeah, he as has already been said at this conference, he was a tireless advocate for sort of a more rigorous, systematic, rule-based monetary policy that you shouldn't think of monetary policy as sitting at a meeting and just putting your finger in the air and deciding what to do. That it has to be part of a longer run strategy, and you'll get the best outcomes for the US if you have that kind of strategy. I think most of the debates are about details around exactly how to do that. How do you go about that? In models it's very clear what you're supposed to do, but once you leave the world of models, it starts to become very unclear exactly how you're supposed to do that. But he was a tireless advocate for that, and I think that's, you know, generally a good thing. It's good probably for all realms of policy that you want to be systematic, and you want to be clear so that people can guess what the government's going to do in the future.
So, in terms of what we have lately, we certainly had over the years many things, but right now as we just said, there's long time over the inflation shoot. Is this, does this have to do with too much discretion and in terms of structure and framework, does it have to do with this increasing emphasis on making the dual mandate, the employment side versus the inflation side to see sort of on the same level somehow. Is that how you see it, and is that something that is the right way to be going with the structure and framework now? Or is it one reason why we're still over 2%?
Well, I think Charles Plosser would say that the, you know, what is the natural rate of unemployment, and what's the natural rate of the economy? Well, it's the growth rate that would come out if there weren't any frictions in the economy, all the prices move around just as they're supposed to, supply and demand shifts in all these different markets, you get a nice general equilibrium that allocates the resources efficiently, and that's going to have some unemployment because there's frictional unemployment, and it's going to have a certain growth rate attached to it. That's the best you can do because markets will turn out the best you can do. So, what monetary policy is doing is on the margin is helping you get to that allocation of resources, and I think, you know, that's not a particularly, that's not a particularly easy thing to communicate, but I think it is the received wisdom after 50 years of thinking about this in academic circles.
I want to ask you a couple questions about a panel you're not on, but you're part of because you're a former Fed bank president, and that's the question of the role of the Fed's district banks. 12 regions of the country, 12 district bank presidents, and FOMC, the Board of Governors with the chair of, you know, nine more people. There seem to be some question about who should have the most control, who should have the most influence. I think some people figure that the bank presidents have kind of diminished in that role to a certain extent. How do you see that balance now? For example, do you think Fed bank presidents should vote on more meetings?
