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Bullard Speaks with Bloomberg about the Fed’s Credibility and Economic Recovery

June 23, 2020

St. Louis Fed President James Bullard discussed his expectations for the U.S. economy in the second half of the year during a Bloomberg interview. He also shared his views on forward guidance, the Fed’s credibility on its commitment to low interest rates, and yield curve control.

Bullard noted that the policy response to the pandemic has been quite good, both on the monetary and fiscal sides, given the nature and depth of the shock to the U.S. economy. He said he expects the third quarter to see a big increase in economic growth as many companies resume operation.

Bullard cautioned against relying too heavily on the development of treatments or vaccines, suggesting instead a focus on managing the disease and the risk. “It’s unpleasant, but there’s a new mortality risk and businesses have to adapt, households have to adapt, and everyone’s doing that,” he said.

Regarding interest rates, Bullard said that the Federal Open Market Committee is giving great forward guidance right now and noted that the FOMC is projecting a low policy rate far out into the future. He added that longer-term yields and global yields are also quite low. “We have the advantage in the current situation that we already built up credibility for low rates and commitments to low rates through the last crisis,” he said.

On yield curve control, he said there are a lot more questions than answers at the moment. He said that he doesn’t think it’s a pending issue for the FOMC “because we’re already expecting rates to be low for quite a while, so I’m not sure that you need to put caps in or anything else.”

He also addressed questions on asset bubbles, inflation risk, measurement issues around inflation, and more.

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