KEENE: This matters now to our guest, James Bullard, the president of the St. Louis Fed. This is the Fed district of, well, it’s the Fed district of the first place St. Louis Cardinals. Dr. Bullard in economics suggests inflation of a lack thereof, should have the full attention of all global central banks, Dr. Bullard, questions the Fed’s fierce focus on jobs. Is it a dual mandate Fed right now? Are they really looking at jobs, and are you, the presidents, the governors, the chairman, do you also care about inflation right now?
BULLARD: Absolutely. It is a dual mandate and I have been a little concerned in the last couple years that we’ve shifted so much attention to jobs. And of course we are concerned about high unemployment, but I don’t want to lose the focus on inflation. Inflation has been running low in the U.S. And I think that’s something that should concern the committee. Our current forecasts are that it will come back to target, but I’d like to see that happen.
KEENE: Well there has to be an action rather than a forecast. Madam Lagarde at the IMF, Oliver Blanchard at the IMF and others talk about a need to reflate. Do we need more, to be more aggressive about a higher inflation to regenerate an animal spirit that will create investment and new jobs?
BULLARD: What I like to talk about is that if we set an inflation target of two percent we should hit the two percent inflation target. We should have credibility that we’re going to hit that target. So we’re moving accommodation when inflation is below target, and maybe threatening to even go lower is a concern to me. People like Olivier Blanchard have advocated choosing some higher inflation target.
KEENE: Back to this program.
BULLARD: I don’t think we would get anything out of that, but I do think that we should defend our inflation target from the low side.
KEENE: There are words that mere mortals speak of that economists speak of differently. I think of the word distinction and others, but one of them is credibility.
BULLARD: Yes.
KEENE: Define for our audience what credibility means to central bankers.
BULLARD: Credibility means ideally committing to a rule that tells the financial markets how we react to developments in the economy and how we’ll adjust policy in reaction to developments in the economy. So the Taylor Rule is a great example of you can have a credible commitment to the rule. That doesn’t mean people know exactly where interest rates would go in the future, but they do know how the central bank is going to react to developments in the economy. We don’t really have that as good right now with our QE program, just does not have as much experience with the QE program as we do with a normal interest rate target.
KEENE: And James Bullard with us. And we will continue two days after an historic Fed meeting.
KEENE: James Bullard here now, president of the St. Louis Fed. Those Pirates have been pesky, but it’s fun.
BULLARD: But the Cards are looking good right now, looking very good.
KEENE: Do you go to the games?
BULLARD: I have been a couple games this year.
KEENE: Is there a Federal Reserve box, or do you have to –
BULLARD: Oh no. We don’t do that. We –
KEENE: Budweiser takes you and you have to pay for your own seat.
BULLARD: Yes.
KEENE: Yes?
BULLARD: Pay for my own seat.
KEENE: But they give you free Budweiser so it’s worth it, right?
BULLARD: No. They don’t do that either.
KEENE: Okay.
EISEN: Jim Bullard, our guest, of course the president of the St. Louis Federal Reserve Bank. Jim, this idea that there’s a manufacturing renaissance that we can count on manufacturing for more growth and that this is a changing story, do you buy it?
BULLARD: There are instances of reassuring in manufacturing in the eighth district, which is my district around seven states around St. Louis. And so I do pay some attention to it. And I give some credence to this. I think you can cite a couple macroeconomic factors. Oil prices have tripled over the last decade. Transportation costs are higher and wages are rising in Asia. And so that’s – those kind of factors together are making some business calculations decide to – business calculators decide to bring the manufacturing (inaudible), –
EISEN: Well how much more competitive –
BULLARD: – especially specialized manufacturing.
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