Thursday, May 5, 2016

"I still hold out some hope": James Bullard on the U.S. becoming Japan

Refreshingly outspoken James Bullard, from the St. Louis Fed, gives an interview to the New York Times. Some great quotes (emphasis mine):

"The general rule of thumb within the Fed is that labor market data trumps G.D.P. data.
"Once major central banks hit the zero lower bound, the key issue was whether central banks would be able to keep inflation expectations consistent with inflation targets.
"I think the Brexit vote, there are a couple of aspects of this that make it much less of an international macroeconomic event. It’s a scheduled event; you can track which way the vote is going to go by looking at polling; and it’s a long-term strategic vote on the part of the U.K. The day after Brexit — even if they vote to leave — nothing would actually change in terms of the trade arrangements. Those would continue for at least two years." 
"The norm in central banking, away from the zero bound, is to say, “We have set the policy rate exactly where we think it should be for today, given everything that’s going on in the economy, and in the future we’ll look at the data.” You didn’t do this kind of dot-plot thing. [...] I’ve wondered if we should get back to something that’s more akin to that. We don’t want to give unintentional commitments." 
"I’ve actually argued that unconventional policy works reasonably well. But it’s far less clear how it works, or how effective it is." 
"I’ve always been worried that the long run here is the Japanese outcome. I still hold out hope that that’s not the case, but I am worried about it, and it’s been going on for a very long time. If you talk to people in Tokyo, they say, 'Well, we’ve been through this and tried all these things, and you guys are just following us.' I hope that’s not exactly true. [...] I still hold out some hope.
"I’m not as big an advocate of fiscal policy as some other people. It’s very hard to do very much on a business cycle time scale, given the fact that you’ve got to work with Congress.
"At some point something will happen and we’ll be back in recession, and by almost any reckoning we will not have much that we can do in the way of lowering our policy rate."

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