A Conversation with Federal Reserve Bank of St. Louis President and CEO James Bullard

Federal Reserve Context:

• St. Louis Fed President James Bullard serves on the Federal Open Market Committee (FOMC) and oversees the Eighth District (headquartered in St. Louis with branches in Little Rock, Louisville, and Memphis).
• Bullard notes that current economic policy decisions are secondary to epidemiological uncertainties, as the Fed relies on external experts for virus modeling rather than internal epidemiological expertise.

Economic Response to Pandemic Risks:

• Market optimism has risen since mid-March, driven by a perception that the virus's severity has been lower than the initial "tail risk" feared in March, though concerns remain regarding potential resurgences (e.g., Arizona).
• Bullard argues the economy is adapting through "endogenous" learning, where firms and households independently adopt granular safety practices to mitigate risk without relying solely on broad government shutdowns.
• Despite the worst quarterly growth in history, actual output is projected to remain at 90% of normal levels, largely due to the viability of "work from home" and successful risk mitigation in essential sectors like grocery retail.

Sector-Specific Outlooks and Adaptation:

• Airlines and Hospitality: Bullard predicts structural changes where industries like airlines and indoor dining may not return to pre-pandemic norms, potentially shifting toward "luxury" models with higher prices and lower capacity to ensure safety, effectively shrinking the industry's size.
• Long-term Economic Impact: Bullard posits that the economy can reach a new steady state that accommodates a persistent mortality risk similar to accidental injuries (currently the fourth largest), suggesting long-term income and living standards need not be permanently lowered once adaptation occurs.
• Contrast in Views: Host Josh Barrow counters that maintaining low mortality risks requires significant foregone economic activity, potentially causing a permanent reduction in standards of living, whereas Bullard views the new steady state as comparable to the pre-pandemic baseline.

Policy Imperatives and Labor Markets:

• Dual Policy Challenge: The Fed and Congress face a tension between using tools like the CARES Act to "freeze" viable businesses in place versus allowing necessary market dynamism for sectors that may not recover.
• Racial Equity in Monetary Policy: Bullard identifies the ideal monetary policy outcome as low unemployment across all racial groups with no statistical gaps between white and Black/Hispanic unemployment rates.
• Inflation Target Debate: Bullard acknowledges that post-2012 policy was likely too tight, resulting in seven years of missing the 2% inflation target, and agrees that over-reliance on the Phillips curve theory was a strategic error.

Global and Institutional Comparisons:

• Europe vs. US: Bullard suggests Europe has been hit harder than the US regarding fatalities and hospitalizations and possesses less fiscal and monetary flexibility to react to the crisis.
• Fed Transparency: Bullard views increased public scrutiny and transparency as beneficial for a democracy, noting that the shift away from "Greenspan-era" opacity helps communicate the rationale behind radical tools (like 13(3) facilities) needed to prevent a depression.
• Risk Management: The primary strategic goal remains preventing a secondary financial crisis or depression, as the intersection of severe health outcomes and economic collapse would create mutually reinforcing negative spirals.