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Bullard Says He Wouldn’t Have Backed 50 Basis Points This Week

(Bloomberg) — Former Federal Reserve Bank of St. Louis President James Bullard, who is in the running to be the next chair of the US central bank, said that he wouldn’t have backed a 50 basis point interest-rate cut this week.

“I thought the Fed’s decision was a good one,” Bullard said Friday on Bloomberg Television. Asked if he would have voted for 50, he said, “No, I don’t think so.” He also said that “this looks like a sequence of three moves in a row through the end of the year.”

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The Fed lowered borrowing costs by 25 basis points this week, a move Chair Jerome Powell framed as a “risk management” cut to bolster an increasingly fragile labor market. The decision was nearly unanimous, with the only dissent coming from Stephen Miran, a Trump ally who officially joined the Fed board this week and favored a 50 basis-point move.

A total of 75 basis points of easing by year-end would be a “significant move,” but still leave the Fed with “optionality” going into next year, Bullard said. He estimated the so-called neutral rate, which neither stimulates the economy nor restrains it, at around 3.25%.

For the doves, getting 25 basis points this week and another 25 in October is “almost as good” as getting a half percentage point this week, he said.

Mortgage Securities

Bullard earlier this month said that he spoke with Treasury Secretary Scott Bessent about becoming Fed chair. Bessent said this week that that was a “very good” meeting. Bullard Friday said that he knew virtually all the candidates in the running, and that they were “good.”

The former Fed official, who is now dean of Purdue University’s business school, also said that it might have been a mistake for the central bank to have loaded up on mortgage-backed securities purchases during the spring of 2020. In the end, the housing market strengthened after the initial Covid shock, and such support wasn’t needed. Now it will take a long time for those securities to run off the Fed’s balance sheet, he added.