Thumper’s Maxim

Sometimes, I don’t know what Jim Bullard is thinking.

Back in June, less than 48 hours after the Fed’s hawkish pivot, Bullard showed up on CNBC and delivered a series of comments that he must’ve known would unnerve risk assets.

It’s not that I think policymakers should always abide by Thumper’s maxim when speaking in public (i.e., “If you can’t say somethin’ nice, don’t say nothin’ at all”). If they think their colleagues aren’t properly weighing the risks associated with the current policy conjuncture, you could easily argue it’s in the public interest for them to say so. And it’s Jackson Hole week, so they’re all going to be talking.

Still, Fed officials schedule more than enough official speaking engagements as it is. There are ample opportunities to publicly convey dissenting opinions in formalized settings. If there’s one thing Fed critics and Fed apologists can probably agree on, it’s that there’s too much talking. Someone from the Fed is delivering potentially market-moving comments nearly every other weekday. We reached the point of diminishing returns vis-à-vis Fedspeak and “transparency” years ago.

While acknowledging (again) that doing interviews around Jackson Hole is obligatory, television cameos mostly for the sake of it seems like overkill, especially when those cameos come during the cash session on networks like CNBC which, forgive me, is produced purely for entertainment purposes. It’s never been clear to me why policymakers and politicians dignify a network known mostly for a nightly segment during which a 66-year-old man pounds on a sound effects board while shrieking at stuffed animals.

On Thursday, during an interview with CNBC, Bullard hit markets with the following:

We do have a new framework. We did say that we would allow inflation to run above target for some time, but not this much above target. So for that reason I think we want to get going on the taper — get the taper finished by the end of the first quarter next year.

There’s nothing (at all) wrong with the first part. Although the Fed has been deliberately vague about the math behind its average inflation targeting framework, you can pretty easily goal-seek your way to an arithmetic-based argument for claiming the target is met. But the math on Bullard’s taper timeline (the second part of the excerpted passage above) is mostly impossible.

For the Fed to complete the taper by March, they’d need to get started literally right now — as in, today. If you assume monthly asset purchases (ex-reinvestments) are zero at the end of the taper, and you target March as the end date, then every month that goes by without starting means you have to trim bond-buying by more than the assumed $15 billion — and you’d be tapering more every month instead of every meeting. Starting now is impossible. And an unveil in September would arguably be disruptive.

Jim wasn’t done. “I think there’s worry that we’re doing more damage than helping with the asset purchases because there’s an incipient housing bubble in the US,” he told Steve Liesman. “The median house price, at least the number I saw, was approaching $400,000,” Bullard added. “We got into a lot of trouble in the mid-2000s by being too complacent about housing prices, so I think we want to be very careful on that this time around.”

Bullard is right on all accounts, of course. It was just two days ago when I proclaimed that “Regular People Can’t Keep Buying $400K Homes.” The Fed is clearly contributing to the inexorable rise in prices (updated figure above) and I spilled quite a bit of digital ink Wednesday discussing the notion that asset purchases are doing more harm than good at this point.

So, the problem isn’t Jim’s message, it’s just that it isn’t clear (at all) what utility there was in regaling CNBC’s audience with a totally unrealistic taper timeline and tales of housing bubbles on the eve of Jerome Powell’s key address. Amusingly, the network’s crack squad of reporters wrote that “Bullard is known as a ‘hawk’.” (And no, they weren’t trying to be ironic or funny.)

Meanwhile Robert Kaplan, who just days ago suggested he might alter his view on the taper timeline depending on the evolution of the Delta variant, on Thursday said the very same Delta variant hasn’t changed his mind at all. He prefers to start the taper soon, and favors an announcement at next month’s meeting. “Based on everything I’m seeing, I don’t see anything at this point that would cause me to materially change my outlook,” he told CNBC, adding that “it would continue to be my view that when we get to the September meeting, we would be well served to announce a plan for adjusting purchases and begin to execute that plan in October or shortly thereafter.”

“Bob Kaplan giveth, and Bob Kaplan taketh away,” Bloomberg’s Cameron Crise wrote, before describing Kaplan’s remarks (last week’s and this week’s) as “not mutually inconsistent — quite the contrary, in fact.” You’re right, Cameron. They’re not “mutually inconsistent.” They’re just an example of what happens when policymakers are compelled to weigh in every other day instead of, you know, maybe once every few months at an innocuous luncheon somewhere.

Esther George had her say too. “I don’t think [the Delta variant] changes my own calculus,” she told Bloomberg’s Michael McKee. “I think it’s important to get started,” she added, of the taper, noting that she’s “open minded” about the pace.

While it’s customary for everyone to weigh in during Jackson Hole, and while acknowledging that the opinion of non-voters matters little as long as Powell, Clarida and Williams are on the same page, this is overcommunication. Bullard’s comments were frivolous, Kaplan’s were confusing and George was par for the course. The only thing that came out of the whole cacophony was weakness in equities which will promptly reverse Friday if Powell leans dovish, as expected.

As Bloomberg’s Elena Popina put it, citing traders, “three of the non-voting Fed presidents dropped a ‘sooner rather than later’ comment regarding the [taper] and that, as much or more than the Kabul blasts, was what fueled the drop in the S&P.”

“While the current policy mantra appears to be ‘every hawk has its say’ the fact is neither Bullard, George, nor Kaplan are FOMC voters this year [so] if the market’s assumption is correct and tapering is announced at one of the three remaining 2021 meetings, today’s Fed speak won’t translate through to actual votes on the commencement of the wind down of asset purchases,” BMO’s US rates team said, in a late afternoon note, adding that “there’s an argument that if Thursday’s official commentary represents the loudest voices in favor of an earlier taper, then the balance of Jackson Hole could prove more balanced, if not outright dovish.”