James Bullard Says Fed Credibility Is On the Line, Repeats Faster Rate Hike Message

February 14, 2022

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7:09 pm

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39 comments

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Economics

Credibility On the Line

In a CNBC Interview, James Bullard stressed the needs to ‘front-load’ rate hikes to combat inflation.

Bullard Statements

We have the hot CPI report. Not so much that report alone, but the last four reports taken in tandem have indicated inflation is broadening and possibly accelerating.
I am just one person but I would like to see 100 basis points on the policy rate by July 1.
“I do think we need to front-load more of our planned removal of accommodation than we would have previously. We’ve been surprised to the upside on inflation.
This is a lot of inflation in the US economy. 7.5% on the headline CPI. These are numbers Alan Greenspan never saw and haven’t occurred in 40 years.
Our credibility is on the line and we do have to react to data.
My position is a good one and I will try to convince my colleagues it’s a good one.
Inflation is much higher than we would have expected six months ago, nine months ago, and certainly twelve months ago. We’ve been surprised to the upside.
I think the inflation we are seeing is very bad for low and moderate-income households. Real wages are declining. People are unhappy. Consumer confidence is declining. This is not a good situation.

Question of the Day

Precisely what credibility does the Fed have to maintain?

For example, please note New York Fed Concludes Underlying Inflation Is Only 4.6%.

Meanwhile, “Government in Sunshine” Emergency Fed Meeting on Monday to Discuss Inflation.

Let’s see what they have to say, if indeed anything.

This post originated at MishTalk.Com.

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39 Comments

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Casual_Observer2020

2 years ago

I knew they should have raised rates last year. Where do I apply for a Fed seat ?

vanderlyn

2 years ago

Reply to Casual_Observer2020

if you have to ask where to apply, you are unqualified. i am sure you are too decent a human to want the gig.

ohno

2 years ago

You think it’s very bad for people? Lol! Please pack your bags and get the hell out of kc!

WTFUSA

2 years ago

“Fed credibility” is an oxymoron.

vanderlyn

2 years ago

mish, are you still in the camp of no rate hikes you suggested not too long ago? or have you changed your mind as more info has developed. i’ve been firmly in camp of they weren’t kidding for quite some time. they have to telegraph the rate hikes, so the big boys can make adjustments. i have. and i’m a little fella, but with a stellar track record over 40 years. it’s much easier to trade when it’s one’s own money and not a clients. i did the client thing for ages. it corrupts the mind in this game we all play. imho. anyway thanks. you have one of the best financial blogs on intertubes.

Mish

2 years ago

Reply to vanderlyn

2-3 hikes

I did not say they wouldn’t hike, only that it would not surprise me if they didn’t.

I still do not see 7 hikes.

perhaps 4

vanderlyn

2 years ago

Reply to Mish

thanks. you helped me greatly during the great panic and run up to 2007/8…………

RonJ

2 years ago

“…James Bullard repeats his inflation warning.”

Isn’t he late?

vanderlyn

2 years ago

Reply to RonJ

he’s very late. this bubble of everything is gonna deflate. only question is how fast and far. could be only a couple of years or perhaps couple of decades.

Rbm

2 years ago

Yeap know body knows. I hope biden is posturing big to make putin think twice.

Funny putin wont talk to the Ukraine. Maybe if russia treated its neighbors better they would not feel like they need to join nato.

Remember china is watching. How this plays out. Would not be surprised if putin invades xi will make grabs. How ever it works out both want a weaker us.

Is it our business. Not really until it is.

Captain Ahab

2 years ago

Reply to Rbm

Pelosi has as much as said that the entire Russian-about-to-attack narrative is a crock. One look at the sat photos confirms that. A few tent villages is NOT a major offensive being set up.

jhrodd

2 years ago

Reply to Rbm

Maybe if Russia’s neighbors didn’t allow the USA to sponsor a “color” revolution they would get better treatment.

thimk

2 years ago

This is token rate increase proposal. A few small incremental rate increase are not going to put the inflation genie back into the bottle. Much of this inflation is structural . Which would make a good discussion (hint) .

Tony Bennett

2 years ago

Reply to thimk

“Much of this inflation is structural”

…

Opinions vary

Christoball

2 years ago

I think that James Bullard understands that if when we go into the soon expected recession, that it would be bad if we also had inflation as well. Stagflation is about the most embarrassing outcome the Fed could foster.

Tony Bennett

2 years ago

Reply to Christoball

I just don’t see stagflation taking root due to Massive debt overhang which MUST be serviced.

Stagflation of 1970s had 2 things going for it not present. 1) Debt level much lower. 2) Late 70s early 80s had Boomers hitting their stride (spending). Average age of US 10 years older (39 vs 28) now. Aging demographics lead to less spending (outside of health care).

BowserB46

2 years ago

Reply to Tony Bennett

Tony, your comment seems to support the idea of stagflation more than not. Debt level was lower then, yes. I was one of those boomers working as a professional as of 1971–probably part of the problem then, because we bought stuff counting on affording the payments after the next raise. Again and again. Now, those of the age we were then, can’t find jobs in Underwater Basket Weaving, and they have $150,000 in debt for the six years they spent on their four year degrees. Also now, I’d really like a Tesla, and I can afford to write a check to buy one…but I won’t. I’ll keep driving my 2000 Subaru.

Groceries in my supermarket are up 20% or more, and I’m expecting my 10.5 cents a kwh to go to 15 before the year is up. Property tax rates are expected to increase the maximum allowed by law. Auto and homeowner insurance is way up. Water and sewer up 10%. There’s too much risk for us to spend money we don’t have to. And like the 1970’s when interest goes up, the stock market will go down, so we’ll have less in the future with higher prices. Bottom line: we’re not spending money–as you say, except for health care.

Christoball

2 years ago

Reply to Tony Bennett

I think that stagflation could be that famous word “transitory”, maybe for just a quarter.Prices could temporarily have some momentum as GDP declines. Then watch out cause everything will be on sale. My point is the embarrassment that it will cause, and it needs to be prevented. For that brief period of time that stagflation occurs there will be egg on face.

whirlaway

2 years ago

My expectation:The Fed takes rates to about 1% or so by the end of the year. The asset markets collapse, with some like NFTs, cryptos etc., getting decimated. Dow/S&P500 type stocks go down 20-25 percent, with the Nasdaq momentum darlings going down 50-60 percent or more. Inflation will go down too, since a good part of it is caused by the wealth effect. The Fed then quickly cuts the rates to zero, to stop further losses in the markets.

Captain Ahab

2 years ago

Reply to whirlaway

The Fed has no control now. It is responding to its previously crappy policies. What makes you think it can suddenly regain control?

whirlaway

2 years ago

Reply to Captain Ahab

It still is largely in control. It doesn’t deserve to though. That is a different matter.

Tony Bennett

2 years ago

“I think the inflation we are seeing is very bad for low and moderate-income households. Real wages are declining. People are unhappy. Consumer confidence is declining. This is not a good situation.”

…

Who gave him truth serum?

LostNOregon

2 years ago

Reply to Tony Bennett

It was the guy from Ant-Man and the Wasp!

link to youtu.be

Casual_Observer2020

2 years ago

I’m good with killing the market. I don’t need most of that money for 15 years anyway. Bring on the buy opportunity of a lifetime (like 2009).

amalagoli

2 years ago

This is becoming hilarious. The Fed lost credibility decades ago when it decided to bail out big financial institutions while throwing regular folks under a bus. And now Bullard wants to take action against an inflation which the Fed can do nothing about. In fact, rising rates at a time when people face rents increases, car prices and energy increases is really adding insult to injury.

Talk about clueless.

Captain Ahab

2 years ago

Reply to amalagoli

I dare say Bullard was appointed as the doom and gloom guy by the other Fed-heads. It is all one big game to feather their friends on Wall Street. How many Fed heads were Goldman-Sax trained?

WarpartySerf

2 years ago

Hey Bullard – Somehow you’re the last to know – you don’t have any credibility . As far as your tears for the peasants – your boss has increased his stash from $50 million to $80 million plus since he started the “job”. I bet you’ve done fine too – front running your own policies like the rest of your ilk.

Best thing you could do is resign, and admit that the private, predatory , non-Federal Fed should be ended. Along with their control of our nation’s money. Counterfeiting is a felony for the “little people”. It should be for you too .

dbannist

2 years ago

Curious:

If the Fed suddenly disappeared overnight and the free market set interest rates, where would they be in a month?

If the free market were to immediately raise them to normal rates (5-6% or so) the economy would of course implode. So, I wouldn’t see them going there for a long time, even with the free market.

What I think would happen is we’d have slightly higher interest rates (2-4%) and much higher inflation for many years, to offset the overhang of 30 trillion worth of debt. This would be a drag on incomes and the economy as a whole for 20 years at least, kind of like pulling a splinter out very slowly instead of all at once.

So, I don’t think even the free market would set interest rates much higher really than the Fed is going to.

KidHorn

2 years ago

Reply to dbannist

Interest rates would be set by the same mechanism prices are set. Supply and demand. When there’s high demand for loans, interest rates go up. The converse is also true. One thing is for certain, without the FED printing money, over time there would be less and less money available for loans and interest rates would keep going up.

dbannist

2 years ago

Reply to KidHorn

I suspect you are correct. INterest rates would necessarily go up over time and revert to normal. It’s how long that would take that I wonder about.

6 percent interest rates immediately would result in something worse than the Great Depression methinks. The Federal government would have a very hard time funding itself.

Bam_Man

2 years ago

Reply to dbannist

No they wouldn’t

At 6% people would be flocking to the US Treasury market while the stock market completely implodes, as corporate debt rolls over at 3x the prior interest rate.

Of course that would “crowd out” all types of productive investment, leading to an inevitable stagflationary collapse.

There is no way out of this now tiny corner the Fed has been painting itself into for the past 35 years.

TexasTim65

2 years ago

Reply to Bam_Man

That’s only if the treasuries paid 6%.

In a true free market rate, everyone sets their own interest rate (much like how banks set credit card interest rates). The government could continue to pay 1 or 2%. They’d only have to offer a higher rate if they could not find buyers (or they could flat out print money if they didn’t want to pay more).

dbannist

2 years ago

Reply to TexasTim65

And with the government having to spend 100% of tax receipts on debt repayment, due to higher interest rates, who would trust the government at 1-2% rates?

They’d likely be a LOT higher, prohibitively higher. The US credit rating would slowly turn into junk.

Doug78

2 years ago

Reply to dbannist

Not if the government did not run a deficit going forward. It would just pay off the bonds as they come due and not issue any more. Their interest payments at close to 1% are locked in.

dbannist

2 years ago

Reply to Doug78

If they did not issue more debt then the government would have to either dramatically increase tax revenues to fund itself or: severely cut back on spending. To cut back would necessitate removing nearly all welfare or cut SS and/or eliminate the entire department of defense.

Either door would crater the US economy into a depression worse than the1930’s.

Honestly, that will happen either very gradually via credit rating cuts or all at once.

And financial experts have been trying to guess when it will happen for the last 20 years and have been getting it wrong. I’d guess it can’t be too far off, but then again, even the experts have been wrong for decades.

Doug78

2 years ago

Reply to dbannist

That is
very true what you say. If the debt can’t be rolled over then when the
principle comes due you have to find a way to pay for it and that is the
problem. Taxes will have to rise and cuts will have to be made no matter how
you look at it but the rate of the debt reduction can be managed. Inflation
also means more tax revenue and that increased revenue will be used to pay back
debt as it becomes due.

StukiMoi

2 years ago

Reply to dbannist

They’d spike much higher than 5-6%. Effectively no organization of any size, certainly no FIRE racket, nor most individuals, could be trusted to pay anything back. All potential lenders’ current projections; and those of their customers, recursively; are built around on the assumption of infinitely continued debasement. Until the overhang resulting from that dollop of blind faith is cleared, there’s just not enough forward visibility for anyone to risk what money they may still have, at even 15%. Heck, perhaps even 50-100%. Everyone knows that everyone else, including the Big Kahuna, the USG, will be going bankrupt any given day. Who the heck would want to lend anything into that, instead of holding off until Air Force 1, and (finally!) the Real Brooklyn Bridge, is being firesold.

Once the past century of unsustainable debt is mostly cleared, which will only take as long as BK courts processes everything, things will settle down again, though. And then, freed of the debt burden, and the misallocation intrinsic to handing control of all potentially productive capital to clowns with no other qualification than closeness to The Fed, growth will be off to the races, making 5-6% perfectly affordable for productive businesses.

Captain Ahab

2 years ago

Reply to dbannist

Yes, yes. Risk really would be priced into the market, and required returns would increase. Crappy investments would die on the vine. Real estate prices would resume a trajectory based on real values. It will happen eventually. Think of it as ‘regression to common sense.’

Captain Ahab

2 years ago

Reply to dbannist

Sorry, NO! No one with half a brain would lend money unless there is a fair return for a) expected inflation, b) a real rate to compensate for alternative uses of the money, and c) a realistic risk premium.

James Bullard Says Fed Credibility Is On the Line, Repeats Faster Rate Hike Message

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