MCKEE: Was this one of the most uncertain Fed meetings as you sat around the table?
KEENE: Good question, yes.
BULLARD: Yes, because the data didn’t come in the way we were hoping to validate what we said in June.
EISEN: But if you look at some of the weak points of the economy right now, inequality, jobs, demand, is this really something that QE is effective in addressing?
BULLARD: I’ll tell you one thing. If you look at what happened after the June meeting and you look at what happened after this meeting, it should lay to rest the notion that QE is somehow ineffective, or doesn’t have any impact or something like that. That is just going out the window. And those that are saying that are going to have to re-scramble to recalibrate their model.
KEENE: Right. President Bullard, this is critical. Mike, help me here because there’s a sequence here. You have a meeting and then the minutes come out how many weeks on, Mike?
MCKEE: Three weeks.
KEENE: Three weeks on. You’ve just spoken about this meeting of a few days ago. You stated to Mike McKee that there was a real discussion involved. Without jeopardizing the release of the minutes, what was the distinctive tension in the room at the Eccles Building?
BULLARD: Oh I don’t think it’s any secret or anything. It’s the same thing that was discussed in financial markets where the data had come in weaker. The employment report was you had this decrease in unemployment, but also a decrease in labor force participation. What should we make of that? And you really got this just general story of mixed data coming into this meeting. I think based on what we said in June you would have hoped that we’d have pretty strong data coming to this meeting that would rationalize the pullback.
KEENE: Michael McKee?
MCKEE: The statement sites financial conditions. So was it your fault? Did the Fed do it by starting to talk about tapering? And how much of it was (inaudible)?
BULLARD: Okay. Rates went up a lot over the summer. That’s definitely true. And I think for many on the committee that was a surprise. That was not a surprise for me because I’ve said that the flow rate of QE really does matter a lot. And so when we threatened to pull that back markets naturally bid up the yields on the ten year. And I think the chairman was right. That was a concern for the committee.
KEENE: And this sets up the perfect polarity between the Fed and the Bank of England, this idea of the flow rate versus an analysis of the stock. What’s – and when you hear this conversation with our St. Louis president, how do you observe it to the prism of the Bank of England?
ANNA EDWARDS, BLOOMBERG NEWS: Well we did that interesting comparison about where interest rates went on the ten-year gilt in the U.K. after they ended quantitative easing there, comparing that to people’s expectations of where interest rates are going to go when tapering starts here in the U.S. There will be differences, won’t there though, James, because we had – by the time the QE was ended in the U.K. the economy wasn’t in a very strong place. Things looked stronger here. So there were crucial timing differences in the experience.
BULLARD: Yes. And it’s a big factor for this program here is that is open ended QE. And that’s something I advocated for a long time. And I think it – that’s one of the reasons this has a big impact on the economy is because even though you’re talking about a small amount the markets are going to trace out a whole future path for possible purchases.
EISEN: And very quickly, Jim, as we look at the surprise in the markets, there are some critics this week that are saying the Fed has a credibility issue. What do you say to that in communicating its message on policy?
BULLARD: No. I think we do as good a job as we can do on communication, but there is a lot of uncertainty when we’re tracking the economy, as you guys know. And data comes in in different ways, and we have to assess that data and make a decision.
KEENE: Two days after a giant Fed meeting, a shocking Fed meeting, we bring you James Bullard for the entire hour from St. Louis.
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