WHEN: Today, Friday, July 30th at 7-9AM ET
WHERE: CNBC’s “Squawk Box”
Following are excerpts from the unofficial transcript of a CNBC EXCLUSIVE interview with Federal Reserve Bank of St. Louis President James Bullard today on CNBC's "Squawk Box."
All references must be sourced to CNBC.
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Bullard on Japanese Outcome
ONE POSSIBLE OUTCOME FROM THE POLICY IS EVERYTHING GOES BACK TO NORMAL. EVERYTHING LOOKS LIKE IT DID IN THE LAST DECADE. RIGHT? BUT THE OTHER POSSIBILITY IS YOU GO TO THE JAPANESE OUTCOME AND YOU'RE JUST STUCK AND INFLATION -- YOU GET A MILD DEFLATION AND INTEREST RATES STAY AT ZERO. IF WE PROMISE TO STAY AT ZERO FOR TEN YEARS, IT'S JAPAN.
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Bullard on Being Worried
I'M WORRIED THAT THE EXTENDED PERIOD LANGUAGE MIGHT BE FEEDING IN TO THE POSSIBILITY OF DEFLATIONARY OUTCOME FOR THE U.S. I ALSO WANT TO STRESS AT THE OUTSET THAT, YOU KNOW, I DON'T THINK IT'S THE MAIN ECONOMIC SCENARIO IN FRONT OF US. BUT IT IS A RISK.
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Bullard on Inflation Drift Down
IF YOU LOOK AT TIPS, MEASURES OF EXPECTED INFLATION OVER THE NEXT FIVE YEARS, THOSE EARLIER THIS YEAR WERE UP ABOUT 2%. AND, I DON'T KNOW IF YOU LISTENED TO WHAT I SAY, BUT ONE OF THE THINGS I SAID WAS, OH, THE DEFLATION RISK HAS GONE AWAY. WE TURNED THE CORNER ON THE DEFLATION RISK.BUT WHEN THE EUROPEAN SOVEREIGN DEBT CRISIS HIT, THOSE THINGS CAME DOWN AGAIN. THEY'VE BEEN DOWN AS LOW AS 1.3%. 1.4% RIGHT NOW. SO, IF THOSE CONTINUE TO DRIFT DOWN, ACTUAL INFLATION CONTINUES TO DRIFT DOWN, WE COULD GET TO A STICKY PROBLEM HERE.
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Bullard on Still Being an Inflation Hawk
I'M STILL AN INFLATION HAWK. BUT OUR PROBLEM RIGHT NOW, WE'RE NOT ON THE HIGH SIDE, WE'RE ON THE LOW SIDE RIGHT NOW. WE DO HAVE THIS JAPANESE SITUATION THAT'S BEEN VERY DIFFICULT. IF WE DO GET TO THAT SITUATION, IT WILL BE DIFFICULT TO GET OUT. SO FOR THAT REASON, WE NEED TO THINK ABOUT THIS. WE NEED TO THINK ABOUT HOW WE'RE -- WHAT WE'RE GOING TO DO IF WE GET FURTHER NEGATIVE SHOCK?
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Bullard on Shock
YOU GET SOMETHING LIKE A BIG SHOCK TO THE ECONOMY WHICH IS LET'S JUST CALL IT THE EUROPEAN SOVEREIGN DEBT CRISIS. THINK OF THAT AS A BIG SHOCK, OK? HERE IN THE U.S., WE'RE TRYING TO REACT. INFLATION EXPECTATIONS GO DOWN, YOU CONTINUE THE PROMISE TO KEEP RATES AT 0.4, LONGER PERIOD OF TIME. INFLATION IS TRENDING DOWN, REAL RATES ARE GOING UP. THE ECONOMY SLOWS FURTHER. WE PROMISE TO STAY AT 0% EVEN LONGER -- EXPECTATIONS OF INFLATION GO DOWN EVEN FURTHER. PRETTY SOON, YOU'RE IN THE JAPANESE SITUATION.
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(asked if we should or shouldn't extend Bush tax cuts)
Bullard on Not Extending Bush Tax Cuts Not A Good Plan
INCREASING TAXES WHEN YOU’RE TRYING TO GET THE ECONOMY TO RECOVER IS NOT A GOOD PLAN.
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Bullard on Generation of Inflation
WE'VE HAD A WHOLE GENERATION WHERE INFLATION WAS ALWAYS TOO HIGH. YOU'RE ALWAYS TRYING TO GET INFLATION LOWER. YOU'RE IN AN ENVIRONMENT WHERE INFLATION CAN BE TOO LOW AND YOU HAVE TO THINK ABOUT HOW YOU ARE GOING TO COMBAT THAT.
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Bullard on Monetary Policy Never Done
THERE'S NO QUESTION THE DATA HAS BEEN WEAKER IN THE LAST TWO MONTHS OR SO. AND CORE INFLATION HAS BEEN DRIFTING DOWN THROUGH THE SPRING HERE. YOU HAD THE EUROPEAN SOVEREIGN DEBT CRISIS VERY MUCH WEIGHING ON GLOBAL MARKETS. AND, SO, I THINK THOSE ARE SOME OF THE CONSIDERATIONS HERE. I DON'T THINK YOU CAN EVER IN MONETARY POLICY SAY YOU ARE DONE.
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Bullard on Quantitative Easing
I THINK QUANTITATIVE EASING WILL WORK TO GET INFLATION AND INFLATION EXPECTATIONS HIGHER. IN THE PAPER, I CITE THE UK EXAMPLE. I LIKE THE UK'S POLICY. I THINK IT'S BEEN A LITTLE BETTER THAN OURS AS FAR AS BEING ABLE TO ADJUST THE QUANTITATIVE EASING POLICY AS THE SHOCKS COME IN. THEY'VE BEEN MORE EXPLICIT ABOUT TRYING TO HIT THE INFLATION TARGET. THEY GOT HIGHER. INFLATION HIGHER, INFLATION EXPECTATIONS.
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Bullard on Europe
I DO THINK THE EUROPEANS HAVE, YOU KNOW, REASONABLE JOB IN TRYING TO CONTAIN THE CRISIS. IT'S VERY DIFFICULT TO GET ALL OF THE COUNTRIES TO COORDINATE. THEY'VE DONE THIS -- THIS STRESS TEST CAME OUT REASONABLY WELL LAST WEEK. YEAH. SO I THINK WE'RE AT THE END OF THE BEGINNING FOR SOVEREIGN DEBT IN EUROPE. NOW WE'LL GO THROUGH ANOTHER PHASE WHERE YOU HAVE TO SEE IF THE COUNTRIES REALLY FOLLOW THROUGH ON THEIR PLANS.??
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Bullard on Deflationary Trap
IF WE GET INTO THIS DEFLATIONARY TRAP TRACK, WE'RE NEVER GOING TO HIT OUR DEFLATIONARY TARGET. IF YOU THINK IT'S 2%. THAT'S THE NATURE OF THE TRAP. YOU STAY AT ZERO AND YOU GET A MILD DEFLATION. SO YOU'LL NEVER HIT IT IF YOU GO IN THAT DIRECTION.AND, THE THING ABOUT BEING IN THAT KIND OF SITUATION IS, STABILIZATION POLICY, ORDINARY STABILIZATION POLICY IS SHUT DOWN. IN JAPAN, THEY CAN'T REALLY ADJUST NOMINAL INTEREST RATES AS SHOCKS COME TO THE ECONOMY BECAUSE THEY'RE AT ZERO AND THEY'VE BEEN AT ZERO FOR A LONG TIME.
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