James Bullard, president of the Federal Reserve Bank of St. Louis, fielded questions Friday about President Donald Trump's pick to head the Federal Reserve Board, the GOP tax plan and the future of banking regulations.
He was joined by state economic forecaster Michael Pakko of the Arkansas Economic Development Institute at the University of Arkansas at Little Rock. They spoke at the Clinton Presidential Library in Little Rock.
Bullard's main remarks focused on the risk of a yield curve inversion occurring late next year; he said a yield curve inversion indicates another recession is on the way. To avoid this, Bullard recommends raising longer-term rates and for policymakers to use caution.
Pakko spoke about how Arkansas' economy is faring and compared several factors to national averages. He predicts slow but steady economic growth for the next few years, and that the state's economy will weaken in the second half of 2019.
Pakko said economic gains had been uneven geographically. Most have been seen in northwest, northeast and central regions of the state.
Labor force participation has also fallen nationwide since the recession, but Arkansas has seen an even a larger dip: from 63 percent to about 59 percent.
That means a smaller fraction of Arkansans are engaged in productive activity, Pakko said. In particular, young men have dropped out of the labor force.
Pakko also said that the majority of the state's counties are losing population and Arkansas' population growth has been about half the national average.
Personal income growth outpaced the national rate, but most of those gains have been in dividends, interest and rent. Growth in wages and salaries has been slow, but Pakko said one fact to consider in that picture is Arkansas' cost-of-living is around 12 percent lower than the national average.
Bullard: Powell a 'Steady Hand'
Bullard said Trump's nominee to replace Fed Chairman Janet Yellen, Jerome "Jay" Powell, had done well as a Fed governor.
"He's rolled up his sleeves, gotten involved in many aspects of the Fed, got to know people all around the Federal Reserve System," Bullard said about Powell. "I'm looking forward to working with him as chair. I think he'll be very good … [a] steady hand."
He said Powell's views on near-term monetary policies are in line with Yellen's approach.
At full capacity, the board has 19 members, with several serving for years. Bullard said that experience has lent continuity in policy-making even as new members join the Fed.
Trump has also nominated Marvin Goodfriend, a Carnegie Mellon University economics professor, to fill one of the three current Fed vacancies. There will be one additional vacancy to fill when Yellen's four-year term ends in February.
Bullard said he knows Goodfriend and that his expertise would be good addition to the board.
Bullard was also asked about the tax bill pending in the U.S. Senate.
"I think one of the issues for the Fed has been that it hasn't been that clear what would actually make it into the final bill …," he said. "And, therefore, it's been hard to do an assessment of how much impact that would have."
He said the intentions behind the bill — aligning the nation's corporate tax structure with the global tax structure — are good.
He also believes that the legislation is aimed at encouraging investment in the U.S. If that happens, Bullard said the result would be higher productivity and economic growth.
Bullard was asked about banking regulations. He said many of the regulations in the Dodd-Frank Act, passed after the recession with the intention of preventing another economic catastrophe, should not have been applied to the community banks that had nothing to do with causing the recession.
Bullard also said there is pending legislation with bipartisan support that would give community banks regulatory relief.