The SKB Institute hosted Federal Reserve Bank of St. Louis President James Bullard on Monday 8 October 2018 where he delivered the OMFIF Foundation City Lecture with remarks titled “Some Consequences of the U.S. Growth Surprise.” SKB Institute Director and LKCSB Professor of the Practice of Finance, Dave Fernandez, welcomed the over 140 guests and later led the Q&A session, together with Mark Burgess, former President and CEO of Australia’s Future Fund. In his talk, Bullard noted that “The U.S. growth surprise has been a factor in allowing the FOMC to normalize its policy rate along a projected path, with attendant consequences for global financial markets.” Bullard also pointed out that growth surprised outside the U.S. and that in 2017, “relatively speaking, the growth surprise was larger outside the U.S,” he said. This coincided with a period of relative US dollar weakness. In 2018, the U.S. continued to surprise on the upside while other major economies look unlikely to do as well as they did the year before, coinciding with a period of relative U.S. dollar strength.
On whether the U.S. growth surprise can continue, Bullard was cautious and pointed out that the U.S. potential growth rate is widely thought to be relatively low, in part due to demographics. “Accordingly, the U.S. will likely need faster productivity growth in order to maintain current real GDP growth rates,” he said. Such a switch to a high state for labor productivity growth could happen, “but it has not materialized so far,” he added
During the Q&A, Prof. Dave asked about the impact of monetary policy divergence (the FOMC raising rates while other central banks, like China, are easing) on U.S. dollar strength, and Bullard focused his answer on the importance of policy surprises. In the case of the Fed, the market had been skeptical that the FOMC would act, so needed to reprice when it became clear that they would. In response to other questions about the impact of U.S. policy on other countries, Bullard said, “Big picture, emerging markets are as prepared as they can be for changes in U.S. monetary policy.”
As with all speeches by Fed officials, Bullard’s remarks at the SKB Institute were immediately posted on the St. Louis Fed website. The press release and his slides can be found at the link below:
Photos are available for viewing here.
Last updated on 07 Mar 2019 .