Jim Bullard is a young-ish economist who has made quite a name for himself in the financial press. He is friendly, and he boils things down to levels that most non-economists can understand.
His presentation followed Plosser's, and so several times he was able to make reference to things Plosser had said. Of course they both had a good idea what the other was going to say since they have both been with the Fed for a number of years.
From my notes:
Bullard's theme is that there is more optimism now about future economic conditions, and that optimism, more than anything else, is likely what has caused interest rates to rise over the past two months.
He presented a great chart showing that real yields have risen and are now positive, even for long-term gubmnt bonds. He followed that with another great chart showing how expectations about Federal Funds [FF] rates have risen considerably over the past two months.
Bullard explored three distinct hypotheses about why interest rates have risen in the past two months:
- Past data indicate a strengthening economy, leading to a higher demand for lendable funds.
- Inflationary expectations have risen, leading (via the Fisher Equation) to higher nominal interest rates.
- Increased optimism about the economy has led to an increased demand for lendable funds.
Bullard argued that the first two were either not correct or were less likely to have been important than the third.
- Economic data from past 3 quarters (going back to last fall) has notbeen all that good. Not the reason for rising rates. The labour data are mixed with the unemployment rate falling, albeit slowly, but the labour force participation rate continuing to decline; also, real growth has been slow.
- Have inflation expectations Increased? No. We are not going to see a run up of inflation with Europe in recession and China slowing. I wanted him to go further on this but he didn't.
- Growing optimism has led to rising rates. Many, but not all, of the factors that slowed the economy are waning.
In the question period, both agreed the Fed needs to be ruled based and less "we'll have to wait to see how things shape up." They both said that discretionary monetary policy creates confusion and the Fed should make its reaction functions clearer. Hungh. Easy to say.
In the post session interview, interestingly, Bullard disagreed with Plosser, who believes the Fed should begin unwinding its asset acquisition programme slowly now or soon. Instead Bullard wants to wait until the next quarter to make sure the economy is continuing on its path to recovery. To be blunt, Bullard says "rules" but he seems to favour discretion. He would likely respond that his rule is a bit more complex and more conditional; at least it seemed that way in the interview session.
My attendance at the summit is supported by several sponsors, including the Department of Economics at The University of Regina.