Amid the lingering uncertainty surrounding whether the Federal Reserve will cut interest rates, markets are grappling with the question of whether such a move can even materialize in 2024. Joining Market Domination to shed light on the outlook for the Fed's rate cut prospects is Jim Bullard, the former President of the St. Louis Fed.

Bullard acknowledges the ongoing trend, stating "the Fed's been looking for confirmation of the decrease in inflation." While he recognizes the substantial progress made in bringing inflation down over the past year, he notes that the central bank has not yet had "an opportunity to make that rate cut" in 2024.

Addressing the timing of inflation reaching the 2% target, Bullard expresses confidence in the accuracy of the Fed's dot plot: "You don't want to overshoot the target. You would like to asymptote towards the 2% target, at a nice smooth process that goes back down to 2%."

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This post was written by Angel Smith

Video Transcript

Well, a number of Fed officials providing commentary on their perspectives on the policy rate and the economy.

Boston Fed President Susan Collins, for example, encouraging a patient approach when considering lowering rates, Richmond Feds Barkin, echoing the central bank's need for more economic data.

Before thinking of adjusting monetary policy here to discuss is James Bullard, former ST Louis fed President, Dean of the School of Business at Purdue University.

Jim, thank you so much for being here.

Um We have been having this discussion a lot about where the FED is, whether they are behind the curve or ahead of the curve here.

So I'm curious first, uh what you think of that, do you think that the fed is late in beginning its cutting cycle?

Yeah, I think the the fed's been looking for confirmation of the uh the decrease in inflation uh last year at this time, inflation was running, you know, core PC inflation on a 12 month basis was closer to 5%.

Now it's below 3%.

So we've made a lot of progress in the last year, but they've been looking for an opportunity to make that uh rate cut and I I haven't got it during the uh so far in, in 2024 here, but I think they'll be able to get that opportunity.

The most recent inflation report was very encouraging and uh looks like uh you know, if we can get confirmation on that and subsequent inflation reports that the, the committee will be able to move ahead with a rate cut.

A and Jim switching gears a bit, you know, we, you get retail sales, uh, this morning weaker than expected for the second month in a row.

Jim, I wanna get your take on that report and just what, what do you think it tells us about the American consumer here?

Yeah, I think the headline, it sounded like the core, uh, retail sales were actually pretty good.

So I think, um, uh, some of this came from the more volatile elements, uh, that, uh, and especially gas, uh, prices that were down a little bit.

So I think that the consumer is still doing, uh, very well.

A rule of thumb would be if the labor market is doing well, then the, then consumption is gonna do fairly well.

And that's what's going on here.

In addition, you've got the stock market and house prices at, uh, pretty high levels and because of that, the higher end of the income distribution also doing very well.

So it looks like consumption should be in good shape, uh, going forward even though the headline number for retail sales was a little bit uh soft today, Jim.

How long do you think it will take for inflation to get back to 2%?

Yeah.

So the, the committee doesn't say too much about this except in the dot Plot.

Uh And usually they've got uh some sort of slow uh reversion to the 2% target.

Uh You might make some of the progress uh one year and then the rest of the progress the next year and that uh plot that you've got up now certainly shows uh something like that.

And so, uh that's usually the way this is conceived.

And I actually think that's not too bad of a plan.

Uh because you don't want to overshoot the target, you would like to ask him to, toward the 2% target, have a nice smooth uh process that goes back down to 2%.

So I think, uh if, if I was still in the committee, that's certainly what I'd be shooting for.

Uh I don't think you want to get back into the below target, uh inflation that we had in the 2010 to 2019 period.