James Bullard Presentation On Recent Developments In Monetary Policy

Tyler Durden's picture

In the second day full of Fed president speeches we hear from St. Louis hawk James Bullard who spoke in Prague on recent developments in monetary policy, and delivered remarks titled “U.S. Monetary Policy: Recent Developments” as part of a central bankers panel discussion at the 19th European Banking and Financial Forum in Prague. During his discussion, Bullard explained how the Fed’s second round of
quantitative easing was “a classic easing of monetary policy” and “an
effective tool, even while the policy rate is near zero.”  He also
discussed the situation in early 2011, stating that “U.S. growth
prospects remain reasonably good for 2011.”  He added that recent global
and domestic events “present considerable uncertainty, but can be
resolved in benign ways.” Finally, Bullard talked about the path to
normalization.  “Discussion of the normalization of U.S. policy will
likely return as the key issue in 2011,” he concluded.  Overall, the presentation had a not surprisingly hawkish tone. Don't forget it was precisely a year ago that the Fed was being extremely hawkish all over again, with reverse repos flying left and right, and everyone expecting that the economic "growth" was self sustainable, until it wasn't.

More highlights from Bullard:

The Situation in 2011

Bullard stated that, relative to last summer, U.S. growth prospects
improved by early 2011.  “Private sector forecasters and the FOMC all
marked up their forecasts,” he said.  “Anecdotal reports were more
bullish,” showing “profitable businesses with considerable cash and an
improving outlook.”  He added, “An improving economy 18 months
post-recession is generally a strong positive.” 

Noting the improved economic outlook since QE2 was implemented, “the
natural debate is how and when the exit should begin,” Bullard said.
 “However, additional uncertainty has clouded this picture.” 

“In recent weeks, macroeconomic uncertainty has been on the rise from
four key sources,” Bullard said.  The four sources he discussed were:

  1. turmoil in the Middle East and North Africa and the associated uncertainty premium in oil prices;
  2. the natural disaster and the damaged nuclear reactors in Japan;
  3. the U.S. fiscal situation and the possibility of a government shutdown; and
  4. continued uncertainty regarding resolution of the European sovereign debt crisis.

Bullard pointed out that all four situations have the potential to
escalate.  If escalation occurs, he added, how and when to begin
normalizing monetary policy would become less clear.  “Still, the most
likely prospect is that all four are resolved without becoming global
macroeconomic shocks,” he said. 

Normalization of U.S. Monetary Policy

Bullard said that U.S. monetary policy cannot remain
ultra-accommodative indefinitely.  “The process of normalizing policy,
even once it begins, will still leave unprecedented policy accommodation
on the table,” he stated.  “The FOMC may not be willing or able to wait
until all global uncertainties are resolved to begin normalizing

Bullard noted that normal monetary policy has two parts: “QE
accommodation is removed by returning the balance sheet to an ordinary
size over time,” and “the policy rate begins to approach levels
associated with moderate expansion.”  Bullard said that normalization
will take time and added that it is the most difficult part of the
business cycle for a central bank.

“Exit strategy was widely discussed in 2010, and that debate will likely revive during 2011,” Bullard said.

Full presentation

Bullard Prague

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Sudden Debt's picture

“Exit strategy was widely discussed in 2010, and that debate will likely revive during 2011,” Bullard said.


“Exit strategy was widely discussed in 2011, and that debate will likely revive during 2012,” Bullard said.

d_senti's picture

“Exit strategy was widely discussed in (x), and that debate will likely revive during (x+1).

We all know that's the reality, and that there is no exit strategy. The Bernank can't end ZIRP without serious consequences, and there's no one to pick up the slack sans POMO and QE. The sheer quantities are absurd and we can't afford higher rates (we can't afford these rates either, in actuality, but we can pretend to!).

China has been moving out for two years, wisely hoarding commodities instead. Japan is a mess and pulling liquidity out of everything, likely for years. There go our two biggest holders.

I seriously can't see any way they can stop. Does anyone? I'm honestly asking. Gonzalo Lira suggested that the Fed could raid retirement accounts, forcing them to buy treasuries, but QE is a thousand times easier and has little political fallout (at the moment). I really want to know if anyone can fathom a scenario where they can gracefull pull out without TSHTF.

francis_sawyer's picture

"Gonzalo Lira suggested that the Fed could raid retirement accounts, forcing them to buy treasuries"

If that were TRULY the case (and I'm not arguing it's not - just presenting a hypothesis), one would think that it would be more convenient (in aggregate) to raid the 401K's with the DOW at 36,000 (instead of Prechter levels)...

Don't cha think?



Bicycle Repairman's picture

This is jawboning.  If jawboning doesn't work, you'll get a head fake or two.  All the while you'll get inflation in the 5% to 10% per year range.   If head fakes don't work you'll get war and everything that goes with it.  Mobilization, rationing, suspension of all markets.  And many free thinkers and libertarians on this very site will salute and fall in line.

Beam Me Up Scotty's picture

I really want to know if anyone can fathom a scenario where they can gracefull pull out without TSHTF.


Its like the Fed is having anal sex with a woman with bad diarrea.  Better not pull out.  Ever.

writingsonthewall's picture

That is a great analagy - why don't the fed use such terms to describe the issues with QE to the public?

Have you considered being their spokesman?

How about "Bailing out banks is like sleeping with a transvestite - it seemed a great idea at the time when you were wasted - but you go right off the idea when you have to queue for the razor in the morning"

Beam Me Up Scotty's picture

Have you considered being their spokesman?


Just trying to do my part to put things into a form most people can comprehend.  Although, most of those people, bordering on 100% don't read this site.

francis_sawyer's picture


"Asset purchases can substitute for ordinary (interest rate targeting) monetary policy"

"CounterFIATting debt money to keep the S&P afloat can substitute for ordinary (interest rate targeting) monetary policy"


There Bullard - I fixed your powerpoint slide for you...



francis_sawyer's picture


- The policy change was largely priced into markets ahead of the November FOMC meeting.

- The financial market effects were entirely conventional.



tek77blu's picture

This guy is clueless. Listen to someone like Bob Chapman on these matters:


jkruffin's picture

Bubblenomics is about to come crashing down on the masses....yet again.

I was absolutely shocked yesterday (and it is hard to shock me these days), when the idiot troll they rolled out on CNBC (which I only turned on for a min to catch the release of the economic data) said that the dollar rally would force stocks higher.  I don't know where they get these people from, and how much they are paying them, but Santelli flat out called him a moron and told him you can't have higher stocks on a lower dollar, and higher stocks on a higher dollar. You can't have it both ways.  The guys face turned redder than a fire truck.

When these idiots just pump everything from all sides as buy buy buy, it is time to RUN RUN RUN.  They did the same crap in 2008, with Cramer leading the pack, and it cost people Trillions.  They have set the sheep up again for the slaughter, and the sheep are more greedy this time.  Look out below is all I am going to say....

d_senti's picture

Silly jk...there aren't any people in the stock market anymore. It's only HFT robots and Cramer!

jkruffin's picture

As much as I would like to believe there isn't anyone left in the stock market, sadly enough there are. They've been sucked in again. There are people at my work I try to talk to about their 401k and moving their money out of stocks before it's too late, and they look at me like I'm crazy. They have no clue about investing.  These are mechanics by trade, most can't spell worth a damn, and are ignorant to the world's economies.  This is exactly the kind of people Goldman and JPM live off of everyday.  It's a shame.

writingsonthewall's picture

I totally agree - the idea of the free market is that it's participants are rational - how is it rational to put your pension savings into equities because some bouncing jerk-off on the TV told you should?

Don't they realise Cramer revises his previous 'tips' - to ensure he is 'always a winner' with hindsight?

Those who do understand the equity market rarely invest in it themselves - they might invest others money, but they rarely put their own in.

I mean just look at LTCM - look how confident the 'nobel prize winners' were - and look how that ended.

I read the book 'when genius failed' - but it should have been called 'when fools come calling'

francis_sawyer's picture

I think I'll stop there...

There's more BS in this preentation than the teleprompter in chief trying to visualize WHIRRLED PEAS last night...


GlassHammer's picture

"Recent events present considerable uncertainty but can be resolved in benign ways."

Turmoil in the Middle East -  Resolved through War

Disaster in Japan - Resolved through rebuilding

U.S. fiscal situation - Resolved through money printing

EU soverign debt crisis - Resloved through German money


None of the methods to reslove these problems seem benign to me. 

francis_sawyer's picture

"Recent events present considerable uncertainty but can be resolved in benign ways."


You'd need a K9 to go with that benign...


GOSPLAN HERO's picture

Stopping QE will kill the junkie.

Continuing QE will kill the junkie.

Take your pick, comrades.



Quinvarius's picture

Actually, it is stopping QE will cause the junkie to kill his family.  Continuing QE will cause the junkie to kill his family.  Removing the junkie will solve the problem.  The junkie is the banks.  And no matter what, they will continue to get free junk.

Holodomor2012's picture

option 3: jubilee

Pretty sure that's off the table though

Holodomor2012's picture

option 3: jubilee

Pretty sure that's off the table though

Quinvarius's picture

I like how just as things are really getting bad again, they decide to push them over the edge instead of sticking with the plan they said they were going to use.  Now that they have devalued the dollar, it is best that the public doesn't actually have any.  The banks will be able to borrow from and deposit to the Fed for interest indefinately.

DavidC's picture

I always laugh when these people talk about normalization or a return to normality, namely as things were in 2007/2008 - when we were at the height of a bubble...


snowball777's picture

there once was a man name of Bullard

who proved quite an ignorant blowhard

liquidity drool

was cast as a tool

to cull aboriginal dullards