While it has been a long-running joke among the financial commentariat that the key reason for St Louis Fed president James Bullard’s pervasive, at times grating dovishness, was to quietly slip into Trump’s good graces and one night, quietly, to replace the soon-to-be-fired Fed chair Jay Powell, who has provoked Trump’s ire with his refusal to slash rates to deeply negative and unleash a quadrillion-dollar QE, something Bullard would surely have no problems with except perhaps to withstand a formidable challenge from his even more dovish colleague, former Goldman junior banker Neel Kashkari…
All hail Fed Chair Bullard: you will now be paid to take out a mortgage
— zerohedge (@zerohedge) September 18, 2019
… it now appears that such speculation was more than just a running joke, and as Reuters reports Bullard – who for the past three years has emerged as the most “ardent voice” in favor of lower interest rates inside the Fed – “has caught the eye of Trump and others in the administration” as the president pounds on the Fed to lower rates, albeit for different reasons than Bullard.
While one is worried the economy is slowing, while the other is certain it has never been greater, they both agree on what has to be done next: cut rates.
Bullard sees the United States as stuck in a low-growth rut, in contrast to Trump’s best-economy-in-the-world rhetoric. Still, the overlap in their desire for looser monetary policy may be on the verge of boosting Bullard’s influence.
So… Fed Chair Bullard?
Well, why not: as Reuters reminds us, not only has Trump appointed one of Bullard’s top staffers to the Fed’s Board of Governors “an economist who shares at least some of his boss’s views”, but as noted above, there has been been “speculation Bullard could be a top candidate for Fed chair if Trump wins a second term.”
But don’t take our word for it, here’s Larry Kudlow:
Bullard “is a real thought leader in the Federal Reserve system,” Trump’s chief economic adviser Larry Kudlow said last month, a remark the came just days after Trump had called Fed officials “boneheads” and Chair Jerome Powell naive.
It also came after Bullard – who several years ago was the most vocal hawk on the FOMC only to pull a 180 and to, alongside Kashkari, to become the most vocal dove – dissented against the Fed’s quarter of a percentage point rate cut because he wanted double that, his second dissent in favor of lower rates since June.
“At times I have been in the middle of the committee. At times I have been on either end of the spectrum depending on the economic situation,” Bullard said last week following a Chamber of Commerce luncheon in Illinois.
So is he running? Hear it from the horse’s mouth: “I think I have demonstrated my credentials as far as calling my own shots.“
In short, yes. In an interview last month on SiriusXM Business Radio, Bullard said Waller, who taught at the University of Notre Dame before joining the St. Louis staff, would be a “great addition” to the Fed board who would have “his own views” about policy.
The two share some of the same concerns.
Both have made the case for more than a year that worrying signals in the bond market argued for caution on rates, with yields on long-term debt threatening to slip below shorter-term yields in a potential signal of coming recession. It’s a debate that overtook the Fed earlier this year when yields did invert, and added impetus to the recent decision to cut rates.
And while Trump would disagree violently with Bullard that a recession is coming, he would certainly find delight in the St Louisian’s penchant to grow the world’s biggest asset bubble even bigger, if it means pretending that the economy isn’t set to implode overnight, and rates can be cut just a little bit more.
When U.S. central bankers started raising rates in 2015, they thought they were on a climb back to levels near those that prevailed before the 2007 to 2009 recession. Within months Bullard lost confidence that would happen. He adopted a “regime-based” view which argued that the economy would not necessarily converge on one long-term outcome, the conventional approach to monetary policy, but could switch between different states. The new normal he saw was one of low inflation, low growth and low interest rates – until something happened to make it otherwise.
Waller was among Bullard’s co-authors of the paper introducing that view.
“For a variety of reasons, that seems the world we are in,” said Yale University economist Bill English, former head of the Fed’s monetary affairs division.
Actually, it’s not a “variety of reasons”, it’s just one reason: the fact that the world can no longer grow on its own without massive debt creation, and since the debt capacity of the world has been breached, the only willing party to monetize all of it, is the Fed.
“I do think that broadly speaking both markets and parts of the committee have moved closer to my view,” Bullard said in an early September interview. “They might not use the same language, but I think they have moved closer.”
They certainly have, but the only person who is willing to sacrifice centuries of capitalist achievement and extend and pretend the dramatic play at any cost, even if it assures that the next financial crisis wipes out not only hundreds of trillions in wealth off the map but destroys the Fed itself, is Bullard which is why he is perfect for Trump, and we are certain that before it’s all said and done, it will be not just Bullard but Fed Chair Bullard. The only question is what happens after Chair James takes rates negative, launches QE4 (and 5 and 6, etc) and activates MMT, starting the countdown to the end of the dollar – and the world as we know it.