Bullard on the Fed’s policy reappraisal

St. Louis Fed President James Bullard recently had some interesting comments in response to this question:

What will policymakers at the Fed do with the information gathered during this whole review?

I think the code word here is evolution, not revolution. I don’t think we want to give the impression that we’re going to overturn the current Fed operating framework or strategic framework overnight. I don’t think that’s realistic or desirable. But I do think that many of these ideas will feed into future monetary policy as we go forward and creep in in various ways. Some of them might be more visible than others, but I would not expect a manifesto to come out that radically reorients Fed policy.

This is not necessarily meant to suggest that there are big changes afoot. But it is meant to be thoroughgoing, get lots of input and think about these issues deeply on a calendar basis, something like five or seven years. Because otherwise you might go 50 years and you never changed your framework, and it gets badly out of date and it really doesn’t work very well. But because you’ve never thought about the strategy, you’ve never changed it. And if you are going to change it, you would have to change it in small ways in order to make progress.

That’s also what I expect, and it’s probably appropriate. I believe that NGDP level targeting will be implemented very gradually, not all at once. The same is true of NGDP futures targeting—market policy guidance is being introduced at a gradual pace.

The Fed’s biggest mistake was to not use this golden opportunity to have the Congress give them more power, or at least clarify the power that they do have. It’s a rare moment in time when both parties would be supportive of enhancing the Fed’s ability to prevent recessions. What’s the harm in asking?



17 Responses to “Bullard on the Fed’s policy reappraisal”

  1. Gravatar of Michael Rulle Michael Rulle
    11. September 2019 at 06:24

    Comments by Bullard were excellent. While “7” years is an eternity in markets, it is not really 7 years——the “change” has already begun just by the statement alone. They don’t need to ask for clarification, they have the power. You clearly have more faith in Congress than some of us. The risk in asking is you get an answer you do not want. What do Lawyers and debaters say? Something like: “never ask a question you don’t already know the answer to”.

    The Golden Haired boy now wants rates at zero—-or below. Maybe we can get him to get NGDP targeted at 12% with zero inflation. I am still voting for him over the other guy/gal. I don’t pretend to know his game. But his nutty stuff never happens——after 3 years it no longer seems like luck. I am sure many of his policies are disliked——as is the case with any President. But normal stuff happens—-agree or disagree with them—that has been the case. Maybe Warren is just saying nutty stuff that will never happen—-but we have 3 years of evidence under this guy.

    I am sure you (or me) could come up with lots of nutty stuff he has done——except, I would say they are in the same realm of history.

  2. Gravatar of Brian Donohue Brian Donohue
    11. September 2019 at 07:28

    Bullard is great. Can we swap out Powell for Bullard?

  3. Gravatar of Carl Carl
    11. September 2019 at 09:54

    What gives you confidence that they are moving towards a policy of NGDPLT?

  4. Gravatar of Rajat Rajat
    11. September 2019 at 10:15

    I think you’re too optimistic. While they’re proceeding in an ‘evolutionary’ way, we will be faced with a recession risk and governments will rush to implement some form of ‘QE for the people’ and central banks will gradually lose their independence. The public is not going to give central banks a chance to muck around in the face of deflation. Even in Australia with 5.2% unemployment and 1.6% CPI inflation (okay, with tobacco tax increases adding 0.5%), the public is fed up of waiting for the strong economy they were used to pre-financial crisis.

  5. Gravatar of jj jj
    11. September 2019 at 11:50

    The harm in asking for more power is if something currently in a grey area is explicitly denied.

  6. Gravatar of Christian List Christian List
    11. September 2019 at 12:10

    The Fed’s biggest mistake was to not use this golden opportunity to have the Congress give them more power


    can you please clarify a bit where you get these assumptions from? Trump wants to be in charge himself. So one can assume that he actually wants to limit the power of the Fed.

    The Democrats are not so different, they also want the Fed to make political decisions. And they prefer fiscal measures anyway.

    One can perhaps even understand both sides a little, considering the mistakes the Fed has made in the past. Of course, politicians don’t act any better, but as always they think they would.

  7. Gravatar of ssumner ssumner
    11. September 2019 at 14:53

    Carl, The Fed tends to follow the zeitgeist. And economists both within and outside the Fed speak increasingly favorably of NGDPLT.

    Rajat, Yes, that’s a danger, but there’s still time to rescue monetary policy. If the Aussies want higher inflation, then they should tell the RBA to deliver it.

    jj, But they are currently afraid to do anything in the grey area—including negative IOR and QE that risks a default.

  8. Gravatar of Benjamin Cole Benjamin Cole
    11. September 2019 at 16:18

    I hope the Fed moves to NGDP LT, and picks a rate that is high enough to ensure tight job markets

    That is Battle No. 1.

    Battle No. 2 is giving the Fed the tools they need to accomplish and win Battle No. 1.

    Perhaps negative interest rates and aggressive use of QE is enough. The Bank of Japan seems to be having some middling success, although keep in mind they have purchased back half of that nation’s heroic levels of national debt—- that is to say the Bank of Japan has purchased Japanese government bonds equal to more than 100% of Japan’s GDP. In the next recession, should the Fed mimic the Bank of Japan, it would buyback nearly all of the federal government’s national debt.

    Even less encouraging is what has happened at the Swiss National Bank, which has purchased bonds on global markets equal to $100,000 for every Swiss resident. Switzerland’s rate of inflation is under 0.5%.

    Before the Federal Reserve engaged in quantitative easing, there was a great deal of resistance and even proclamations of Doom if the bank should engage in such activity.

    I suspect that money-financed fiscal programs will incur the same resistance but hopefully better results.

  9. Gravatar of Benjamin Cole Benjamin Cole
    11. September 2019 at 18:40

    Add on: Egads. Even when people are wrong, they are wrong for the wrong reasons. Welcome to macroeconomics.

    Trump says the federal government should re-finance its debt, preferably at 0% interest. In the next recession, this may be a possibility.


    But Yahoo Finance says that cannot be. The national debt is not like a home mortgage, that can re-financed. It is not callable.

    Of course, it is also true that the Fed can buy US Treasuries at any time, and the federal government can issue new debt at 0% interest. So Trump is essentially correct, in the right circumstances, the federal government could re-finance debt at 0%, or perhaps even negative interest rates.

    I guess Alan Greenspan is predicting as much.

    What is spooky is that orthodox macroeconomists have a nearly unblemished track record of never predicting a recession, if an economy is still growing.

    This is has left recession-soothsaying the province of the cranks and crackpots. My crowd, the guys with the tin-foil hats.

    But recessions do happen. There are days when the tin-foil hats rule.

  10. Gravatar of Christian List Christian List
    11. September 2019 at 19:30

    Ah okay, it’s the “zeitgeist” lol. The zeitgeist in his own mind. Reading tea leaves is more accurate than Scott’s wishful thinking.

    Now we also know why Scott is so uncritical of China: after all, they are this close to democratization.

  11. Gravatar of Michael Rulle Michael Rulle
    12. September 2019 at 09:28


    Even if I knew how, I know I am not supposed to reason from a price change. But….do negative interest rates concern you? Should we “care”?

  12. Gravatar of jj jj
    12. September 2019 at 11:05

    Scott, I believe in 2008 and 2009 the Fed took many actions of dubious legality. These actions were questioned briefly in the financial media but nobody wanted to make a case out of it, because they were trying to save the world, so to speak.

    I’m no expert on what is or is not legal for the Fed, so I can’t vouch for or against them, but I do remember the questions floating around at the time.

  13. Gravatar of Christian List Christian List
    12. September 2019 at 16:05

    Okay Scott,

    you really convinced me this time, the zeitgeist is in your favor. The editorial boards of the media, the heads of the central banks, they all share your vision. This is just pure gold:

    In any event, almost nowhere in the world is tight money the cause of deficient demand. Where stimulus is needed — as in Europe — it needs to come through fiscal policy. Governments with the space to act need to come to the aid of central banks by taxing less or spending more. In the euro zone, Germany is best placed: Its budget is in surplus, and it could borrow at negative rates, in effect getting paid to spend money. After years of underinvestment, Germany needs to upgrade its roads, schools and broadband pipes anyway.

    Politicians in Germany and the rest of the euro zone should stop asking the ECB to do it all. Draghi said that one of the few points of unanimity among the ECB’s councilors was that it is “high time for fiscal policy to take charge.” 


    It’s a pity that the many years of your monetary policy explanations are so ineffective so far.

    But if your Chinese regime propaganda is just half as ineffective, then your inefficiency also has its positive aspects.

  14. Gravatar of ssumner ssumner
    12. September 2019 at 16:59

    Michael, If you should care, it should be about the things that cause negative rates.

    JJ, Recall that they failed to bail out Lehman for “legality” reasons.

    Also recall that they asked Congress for permission to pay IOR, they didn’t just do it. QE has always been legal, as has forward guidance. So the monetary policy was generally lawful, with the possible exception of paying IOR at rates above the market. And even that took advantage of a legal technicality.

    Poor Christian! In 5000 blog posts he can’t find a single instance of me praising the Chinese regime. It must be really frustrating to continually make these baseless charges without being able to provide any factual support. I feel sorry for him.

  15. Gravatar of Christian List Christian List
    12. September 2019 at 23:10


    it was a tease. If I had known that you were most interested in the jibe, I would have omitted it. I didn’t want to hijack the thread just to talk about your CCP propaganda.

    I found it more interesting that even Draghi seems to believe that monetary policy is not powerful enough and that it is “high time for fiscal policy to take charge”. That’s really what he said.

    Where’s the sign that your message has been received? There’s no sign. Bullard wants this meeting every 5-7 years, the last meeting was just recently, with no real change in policy. So that’s another 5-7 years with no change. There might be another kind of inflation target some day – maybe, maybe, maybe – but not really. That’s all there is. Time to wake up. Your optimism is really remarkable. Good for you.

  16. Gravatar of Christian List Christian List
    13. September 2019 at 00:47


    German newspapers are furious. They write that Johnson is planning a neo-liberal state:

    “Boris Johnson follows the free-market forces in his Conservative Party. The Brexit hardliners, the radical market economists united in the European Research Group (ERG), have long had an economic concept for Britain. They reject the EU with its supposedly protectionist trade barriers. Most of these EU opponents argue for strong competition, free markets and as little regulation and state influence as possible. Their motto: no trade barriers, no trade quotas, no tariffs.

    The mastermind behind this approach, which Johnson follows in many facets, is Shanker Singham of the Institute of Economic Affairs. Singham is one of the central figures of the radical Brexit movement and is regarded as its thought leader. ‘Many EU regulations are bad for economic growth. Britain must be free to develop better,’ he writes in his Brexit Plan A+.

    Britain should free itself from EU regulations wherever their permanent observance is a hindrance. Customs duties and import quotas should be abolished as far as possible.”

    see also:



    Anyway, it’s good leverage. In contrast to the ever-nice May, Johnson knows how to play hardball.

  17. Gravatar of Michael Rulle Michael Rulle
    13. September 2019 at 05:34


    I looked up “negative IOR” on google. It first tried to change my topic, thinking IOR was an error—-google does this when it thinks it detects a spelling error. When I assured the machine of my intent, the first 10 links it showed was from you!. However, you also wrote what everyone writes about when discussing negative IOR——not its cause, but it’s effect. Although you then did not support it—-or it is down your list—-it is clear that markets respond positively to it. My real question is why are we in a negative zone to begin with, not what the effect of creating lower rates does——but who cares? We have rarely been here before but it does not matter. Negative real rates—does not matter. Imagine if the stock market had “negative expected returns”. S&P might go to infinity.

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