I can hear Uncle Milty scream from upstairs – at James Bullard

The St. Louis Fed has long been a bastion of monetarist thinking, but something has changed at the Eighth Federal Reserve District. Here is St. Louis Fed president James Bullard in an interview with Bloomberg:

“Treasury yields have gone to extraordinarily low levels. That took some of the pressure off the FOMC since a lot of our policy actions would be trying to get exactly that result.”

I can only imagine how Milton Friedman would have reacted to this kind of statement – most likely he would have said something like this:

“Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy..After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.”

Friedman said that in 1998. 14 years later central bankers still make the same mistakes. It is incredible. It makes you want to scream and it is especially frustrating when you hear it from the president of a Fed district with a strong monetarist traditions. Just sad…

HT Matt O’Brien

Update 1: Josh Hendrickson was so kind to remind me about this Friedman quote from Milton Friedman’s Monetary Framework (1974):

“On still another level, the approach is consistent with much of the work that Fisher did on interest rates, and also the more recent work by Anna Schwartz and myself, Gibson, Kaufman, Cagan, and others.  In particular, the approach provides an interpretation of the empirical generalization that high interest rates mean that money has been easy, in the sense of increasing rapidly, and low interest rates, that money has been tight, in the sense of increasing slowly, rather than the reverse.”

Update 2: Vaidas Urba has the following comment about Bullard:

“Very strange to hear this from Bullard, as he wrote the Seven Faces of the Peril paper where he discussed the low interest rate deflationary equilibrium….Bullard: “To avoid this outcome for the United States, policymakers can react differently to negative shocks going forward. Under current policy in the United States, the reaction to a negative shock is perceived to be a promise to stay low…”

So yes, Bullard once (in 2010) understood and now apparently he seem to have forgot about how monetary policy works.

Leave a comment


  1. Maybe Jim is running for chairman. GOP hawkish.

  2. Christopher, I just think he is confused. Or maybe he changed his speechwriter…no, joke aside I see no logic in Bullard’s constantly changing views. It is simply unexplainable. And by the way if he wanted to please the GOP then he should become a goldnutter. That is apparently what appeals to the Grand Old Party these days. Sad…

  3. GOP will oppose further easing until Mitt walks into the Oval Office.

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