//The Fed: Fed shifts to Jim Bullard’s world after new interest-rate strategy

The Fed: Fed shifts to Jim Bullard’s world after new interest-rate strategy

Bloomberg News/Landov

St. Louis Fed President James Bullard

The world of monetary policy that the Federal Reserve has just entered into is where St. Louis Fed President James Bullard has been for some time.

While little is known about the Fed’s internal deliberations, Bullard has for years stressed the need for the Fed to be cautious about raising interest rates.

He said the U.S. was stuck in a low-growth, low-inflation rut and it didn’t make sense for the Fed to keep penciling in future rate hikes.

Read: Fed’s Bullard argues against December interest-rate hike

Bullard’s views now dovetail with policies laid out by Fed Chairman Jerome Powell and his colleagues last week.

The central bank dropped its guidance that more interest rate increases were likely, suggesting the next interest rate move could either be an increase or a decline.

“Bullard has been an outlier on a lot of issues. This time, he’s right. It looks like the committee has converged to some of his views,” said Roberto Perli, a former Fed staffer and now a partner at Cornerstone Macro.

Robert Brusca, chief economist at FAO Economics, said, “I think Jim Bullard is a genius. He was complaining that the Fed was not looking at the fact that inflation wasn’t rising even though labor markets were tightening.”

Brusca said that, until January, Bullard had been sidelined as a majority of Fed officials have supported raising rates. This majority consisted of hawks allied with more traditionally dovish Fed officials — like Boston Fed President Eric Rosengren — who were worried about possible asset bubbles caused by low interest rates.

Bullard, who became a voter in January, has dismissed the view of this majority that tight labor markets would ultimately result in higher inflation.

He also said the central bank should admit it doesn’t know where a “neutral” level of interest rates is.

And he warned the Fed not to ignore the yield curve that was flattening even as the central bank tightened monetary policy.

“What Bullard’s been trying to say is, ‘let’s be really cautious.’ There’s no reason to be charging beyond neutral,” said James Glassman, head economist for commercial banking at JPMorgan Chase.

See: Fed can ‘wait and see’ and react to surprises in either direction, Bullard says

That the Fed has adopted this more dovish tone doesn’t, of course, mean that it was Bullard who persuaded them.

And Minneapolis President Neel Kashkari has been another consistent dovish voice on the central bank since he joined in 2016.

Details of the Fed switch on tone won’t be known for five years, when transcripts of the central bank’s Jan. 29-30 meeting are released.