Jim Bullard Talks Treasury Stepping In to Support Bonds

**SPEAKER_1** (0:02)
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**Jonathan Ferro** (0:07)
Former St. Louis Fed president Jim Bullard joins us now. Jim, I just want your reaction to the initial move from Treasury just moments ago. Does this help bring some stability to this bond market?

**Jim Bullard** (0:19)
Well, the market reaction suggests that this is an important tactical move from the Treasury, a little bit unexpected, so you're probably getting an outsize reaction right now. But I don't think it changes the fundamentals of big fiscal deficits and a Fed on the sidelines, which is what's driving longer term yields higher.

**Jonathan Ferro** (0:41)
Just on the deficits and on the supply more specifically, Jim, I think there's a belief that this might be the first step of maybe a few steps. And the next step might be to tighten up issuance at the long end of the curve again. Would you assume that's the direction of travel now into the next quarterly refunding later on this year?

**Jim Bullard** (1:00)
Yeah, you could see that and markets would have to react to that and of course supplies is critically important for the traders. But I don't think for the macro economy, that doesn't change the fundamentals. Unemployment, 4.1%.
You've got inflation on PCE basis, core PCE basis running over 3%. The committee's still expecting over 3% at the end of this year, even with good inflation reports between now and then. You've got longer term yields, 30 years up over 5%, 10 years heading toward 5%. You got to take some policy action here, I think either on the deficit side or on the monetary policy side, in order to make sure that we don't get too high yields.

**Jonathan Ferro** (1:55)
Well, I think you're seeing that policy action right now, and you're seeing the move in markets too. Yields down by basis points at the long end on 30s back to 520
That relieves some of the pressure in equities. Equity futures high by about a third of 1% on the S&P 500 Jim, we can park that for now. What's the role of the Fed in all of this? That's the important question for you, sir. Does the Fed have a role to play here to help stabilize this bond market?

**Jim Bullard** (2:20)
Oh, absolutely. I think that the fact that the committee is projecting core PCE to be above 3% at the end of this year, that would be the same as in 2023, 2024, 2025, and now 2026 So, that looks like a 3% inflation target. They have to take action to convince markets that they really want to get inflation back down to 2%. And Chairman Warsh has done a good job in saying that that's what he wants to do, but the market is going to want to see action. And why not take action? GDP now, for the third quarter, you know, up at 4%.
You've got equity to, or let's say wealth to disposable income ratio at all time highs. That's feeling ongoing consumption.
Unemployment rate very low. Claims, initial claims very low. So, it looks like you have a good labor market. So, it's a good time to reestablish credibility on inflation fighting and go ahead and make a move. You probably wouldn't have to do too much now, and then that'll save you from a headache that you might develop for 2027

**Jonathan Ferro** (3:35)
So, are you saying that they should hike in September?

**Jim Bullard** (3:39)
Well, I'd consider it. I don't think it's too bad of an idea.
You know, I think that markets are saying that, well, the jobs report was a little bit mixed, although unemployment is low. And overall metrics on the labor market seem to be that the market's in a good equilibrium.
So, you know, why not go in September? Or if not, then at least give a signal that you might go later in the year. Ironically, the September meeting has the most forward guidance of any meeting, because the dot plot plots out what you might do over the next 90 days, over the remainder of 2026 So I'm wondering if Chairman Warsh will abolish the dot plot for this meeting. He could use Jackson Hole to do that. Or whether he would let it go. And then the committee might come in and say that they're not planning to do too much, according to the dots anyway, not planning to do too much by the end of the year. I don't think markets would probably like that. And you'd see higher longer term yields.

**Jonathan Ferro** (4:47)
Jim, before we get to September, I just want to stay on July, just for a beat. Some minutes coming out later, Jim. Now typically, they're not that important, but this feels slightly different, because we had a cleanup effort in the Financial Times for the Fed chair, following the news conference. What would you look for in these minutes?