Mester And Bullard Discuss Yield Curve And Fed Policy

Excerpts from St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester.

WHERE: Across CNBC’s Business Day programming


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Jerome Powell loretta mester
By Federalreserve (powell_jerome_060512_8x10) [Public domain], via Wikimedia Commons

St. Louis Fed President James Bullard


James Bullard on low unemployment:

“I don’t think that low unemployment is a threat, and it’s really an opportunity to do a lot of good things in the labor market. You can get people into jobs who have been marginally attached to the workforce that will set them up to survive the next recession and do better the next recession. So I think there are a lot of good things that can happen, they can be developing human capital if we can get them into the game here”

James Bullard on taking on the yield curve:

“A lot of people have said, maybe we shouldn’t knowingly invert the yield curve, I agree with that. I don’t think there’s a reason to take on the yield curve, take on the possible recession risk that you’d be inviting, and so I think we should be very careful.”

James Bullard on not seeing inflation pressure:

“As far as inflation in the US, I just don’t see much inflation pressure. And the reason you would want to be preemptive would be to shut down incipient inflation and the market is not seeing that, I’m not seeing that in the tips market. I’m inflation hawk, but I just don’t see that developing and if it does develop I think we can react and react appropriately.”

James Bullard on the Phillips Curve:

“The Phillips Curve has not been a very effective way to predict inflation over the last 20 years. And unemployment’s low. A lot of people have in mind that that’s going to lead to inflation and therefore we need to slow the economy down. I do not think that’s a good way to think of policy in this particular environment. And I would focus more on where we think market expectations and inflation are. “

Cleveland Fed President Loretta Mester


Loretta Mester on why she’s upped her forecast:

“I think that the fiscal policy, the stimulus and the tax cuts has been a positive for the economy in terms of growth, demand growth, and so that’s one of the factors. But also there’s been more momentum in the economy than I might’ve anticipated. So businesses are still very upbeat, small businesses especially seem very upbeat. And so that’s one of the reasons that I’ve upped my forecast.”

Loretta Mester on monitoring tariffs:

“A lot of the firms have said that they are concerned about the tariffs, and then when you probe them a little bit further, have they taken action? Most of them say if they’ve done anything it’s maybe postpone a decision, but they haven’t really done anything in reaction to the tariffs yet. So again, this is something we’re monitoring, but I haven’t seen it come up strongly in the data yet.“

Loretta Mester on risks upside and downside:

“Fiscal policy could be an upside risk to the forecast, that’s the way I view it at this point. So we’re going to have to take that into account. We don’t pre-judge things. We come in looking at what the data is telling us and sort of calibrate our policy to it. I don’t think we can say now where interest rates are going to necessarily be a year from now. I think we’re going to have to look at how the economy evolves.”