May 10, 2016
This is the fourth in a series of profiles of the members of the Federal Reserve Board’s Open Market Committee [FOMC]. The profiles will focus on their writings, public statements, and voting records as members of the FOMC.
Since assuming office in April 2008, St. Louis Federal Reserve Bank President James Bullard has generally been considered of the more hawkish members of the FOMC. However, his speeches, interviews, and lone dissenting FOMC vote since 2013 show that he is quite moderate. If there is a central theme to Bullard’s views on monetary policy, it’s that he favors inflation targeting. But unlike many who view the Fed’s 2 percent target as a ceiling – that is, inflation is not supposed to surpass 2 percent – Bullard clearly views it as a legitimate target, such that 1 percent inflation is just as problematic as 3 percent inflation. This means that when Bullard anticipated less-than-two-percent inflation, he generally favored monetary stimulus; when he anticipated over-two-percent inflation, he favored tightening.
In 2010, Bullard warned that the U.S. might be on the verge of a Japan-like deflationary spiral, and came out in favor of quantitative easing as a remedy.[1,2] His support for quantitative easing was full-throated – Bullard stated that quantitative easing (QE) “offers the best tool to avoid such an outcome” (pg. 339).[1] The New York Times noted that only three out of ten FOMC members at the time had expressed such strong worries about deflation:
“Of 10 current members on the committee, two are openly concerned about inflationary risks; three, now including Mr. Bullard, are somewhat worried about deflation; and five centrists, including Mr. Bernanke, have not expressed a firm leaning either way.
“Mr. Bullard, in a conference call with reporters on Thursday, said that if any new ‘negative shocks’ roiled the economy, the Fed should alter its position that interest rates would remain exceptionally low for ‘an extended period,’ or resume buying long-term Treasury securities to stimulate the economy.”[2]
In the Times article, Bullard cited low inflation expectations as one reason for favoring quantitative easing.[2] It seems that even as far back as 2010, inflation expectations were a central focus for Bullard.
Although he was strongly in favor of the Fed’s initial QE program, Bullard came out against the third quantitative easing program (QE3) in February 2012.[3] However, he also indicated that his view could be changed based on the next month’s data.[3] In September, Bullard stated more clearly (in an interview with Reuters) that he saw QE3 as an unwarranted program: “I would have voted against it based on the timing. I didn’t feel like we had a good enough case to make a major move at this juncture.”[4]
In 2013, Bullard came back in support of quantitative easing. His stated reasoning for reverting back to his original 2010 position was that “inflation in the U.S. ha[d] surprised to the downside” (slide 3).Bullard wrote: “This configuration of data suggests that the FOMC can continue to pursue its aggressive asset purchase program” (slide 3).[5]
2013 proved to be a significant year for Bullard in pushing for the Fed to more strongly emphasize inflation targeting. He dissented from the June FOMC meeting because he believed that the Fed wasn’t doing enough to boost inflation up to the Fed’s 2 percent target (pg. 11-12). He continued to press for a firmer commitment to inflation targeting, and the Wall Street Journal summarized his activism as follows:
“Mr. Bullard has had influence at times. He was a vocal supporter of the idea the Fed must defend its 2% inflation target whether price increases exceed or fall short of it, leading the Fed in the summer of 2013 to make that commitment explicit.”
As late as October 2014, Bullard was in favor of maintaining the Fed’s strategy of quantitative easing.6 Because of low inflation in 2014 plus low projections for future inflation, Bullard stated that he opposed the Fed’s decision to taper down its QE program.[6]
The very next month, Bullard said he supported his colleagues’ decision to end the QE program and began calling for higher interest rates starting with the first quarter of 2015.[8,9] He said that even with an interest rate rise, he expected inflation to move up to 2 percent, which he viewed as an important goal.[8] In early 2015, Bullard spoke out on numerous occasions in favor of higher rates.[10,11,12]
So far in 2016, Bullard has reversed his position a number of times largely based on his readings of inflation and inflation expectations. In January, Bullard said he favored four rate hikes in 2016, but said that he was worried about declining inflation expectations and might change his position going forward.[13] It didn’t take long for that to happen. In February, Bullard reversed his position, saying that he was opposed to rate hikes because of declining inflation expectations.[14,15,16,17] But the very next month, Bullard reversed his position again, stating that the newest labor market data led him to believe that the Fed would overshoot its 2 percent inflation target.[18,19] He said that while inflation expectations were in control when he spoke the previous month, they had gone up since then.[18] Most recently, in an April interview with Bloomberg, Bullard hinted that he was again worrying about overly low inflation (comment edited for clarity):
“Well as you know, I have been concerned about inflation expectations. And when I talked in mid-February, you had the 5-year, 5-year forward tipped spaced inflation measures down below one, one-and-a-half percent. That got me kind of nervous, and I started to flag those. Now they have recovered probably back to December levels – and I find that comforting – but you’d actually like to see those numbers even somewhat higher than they are today. They reflect the credibility of the Fed and its ability to hit a long-run inflation target of 2 percent.”[20]
Bullard’s actions and public statements since joining the Fed have proven remarkably non-ideological. He does not fit into a clearly-defined box of either “hawk” or “dove.” If there is one thing which is clear about Bullard’s views, it’s that he has remained focused on 2 percent inflation. In fact, in 2012 Bullard called for eliminating the Fed’s maximum employment mandate and instead pursuing a single mandate of inflation targeting.[3,4] But while Bullard has remained focused on inflation, it would be incorrect to say that he consistently favors rate hikes aimed at lower inflation. Instead, Bullard takes the Fed’s 2 percent inflation target quite seriously, and most importantly, he clearly views it as a target – not a ceiling.
[1] Bullard, James. Seven Faces of “The Peril”. September/October 2010. Federal Reserve Bank of St. Louis Review.
[2] Chan, Sewell. Within the Fed, Worrieshttps://research.stlouisfed.org/publications/review/10/09/Bullard.pdfof Deflation. July 2010. New York Times.
[3] Spicer, Jonathan. QE Only Needed If Economy Deteriorates: Fed’s Bullard. February 2012. Reuters.
[4] Bull, Alister. Fed’s Bullard Says QE3 Was Launched Too Soon. September 2012. Reuters.
[5] Bullard, James. The U.S. Economy and Monetary Policy. June 2013. 19th Annual Conference of Montreal.
[6] English, William. Minutes of the Federal Open Market Committee: June 18-19, 2013. July 2013. Board of Governors of the Federal Reserve System.
[7] Leubsdorf, Ben and Michael Derby. Fed’s Bullard Says He Would Consider Continuing Bond Program After October. October 2014. Wall Street Journal.
[8] Derby, Michael. Fed’s Bullard Still Wants Fed Rate Rise in Late First Quarter 2015.November 2014. Wall Street Journal.
[9] Derby, Michael. Fed’s Bullard Upbeat on Economy, Sees No Need for New Stimulus. November 2014.Wall Street Journal.
[10] Derby, Michael. Fed’s Bullard: Current Low Inflation Doesn’t Support Zero Rates. January 2015. Wall Street Journal.
[11] Derby, Michael. Fed’s Bullard Says Zero Rates No Longer Appropriate for U.S. January 2015. Wall Street Journal.
[12] Derby, Michael and Jeffrey Sparshott. Bullard: Now May Be Good Time to Start Raising Rates. April 2015. Wall Street Journal.
[13] Robb, Greg. Fed’s Bullard Still Favors 4 Rate Hikes in 2016 Even with Receding Inflation Goal. January 2016. MarketWatch.
[14] Bullard, James. More on the Changing Imperatives for U.S. Monetary Policy Normalization. February 2016. Money Marketeers of New York University.
[15] Orrell, David. St Louis Fed’s Bullard Says It’d Be ‘Unwise’ to Continue Rate Hikes for Now. February 2016. CNBC.
[16] Schneider, Howard. In Switch, Bullard Warns Against Rate Hikes, Suggesting Fed’s Direction. February 2016. Reuters.
[17] Spicer, Jonathan. Fed’s Bullard Repeats Warning on Rate Hikes, Cites Threat to Inflation Target. February 2016. CNBC.
[18] Matthews, Steve. Bullard Sees Case for April Hike as Inflation Set to Pick Up.March 2016.Bloomberg.
[19] Spicer, Jonathan. Fed’s Bullard: Rate Hike ‘Not Far Off’ Provided Economy Evolves as Expected. March 2016. CNBC.
[20] Bullard, James. James Bullard Reads Into the Fed’s Tea Leaves. April 2016. Bloomberg.
