Former St. Louis Fed president: Economic outlook strong this year

The economic outlook is strong for the United States this year, said former Federal Reserve Bank of St. Louis President James Bullard..Speaking April 26 during the Bank Holding Company Association Spring Seminar at the Westin Edina Galleria, Bullard said the artificial intelligence boom is driving economic growth, especially through the construction of AI data centers. AI capital expenditure as a share of GDP exceeds the share the railroads had during their peak construction from 1850-59. More than 60 such projects, valued at more than $50 billion, were expected to break ground early this year. GDP growth remains strong, Bullard said. U.S. GDP is expected to grow at a 1.2 percent to 2.2 percent clip in the first quarter of this year. While retail gasoline prices have increased, the United States remains a net exporter of petroleum products. He said the price of oil is not historically high as the country is not especially sensitive to global oil prices. While core PCE inflation remains around 3 percent, the Federal Reserve Bank of Dallas trimmed its mean inflation measure to 2.3 percent. Bullard said trade uncertainty has dropped, with the effective rate lower than in the spring of 2025. While Republicans and Democrats swore off tariff revenue before Trump took office, Bullard said the parties now enjoy the revenue as it reduces the amount of other tax increases. He predicted tariffs will remain for at least the next two decades. The crackdown on immigration under the Trump administration has reduced the supply of workers, Bullard said, leading to changes in employment numbers. Still, the United States remains at near full employment, with 4.4 percent unemployment as of February. Though the War between the United States/Israel and Iran is ongoing, the conflict has not brought much disruption to the stock market. There is also uncertainty over the future of the Federal Reserve Board of Governors, though the tension was tempered after the Justice Department announced it was dropping an investigation into Chair Jerome Powell for cost overruns on a $2.5 billion headquarters renovation project. After the announcement, Sen. Thom Tillis (R-N.C.) announced he would drop his opposition to President Donald Trump’s nomination of Kevin Warsh to the chair position. Trump had been accused of using the investigation as a pretext to get Powell to lower interest rates. Bullard sees the Trump administration as placing “unusually heavy, but not unprecedented” pressure on the Federal Open Market Committee to lower interest rates. Bullard said the protections under the Federal Reserve Act, a 1913 law that established the Federal Reserve System as the central bank of the country, would be eliminated if partisans used lawfare to force out FOMC members. During the 1960s, President Lyndon B. Johnson placed intense pressure on former Fed Chair William McChesney Martin to keep interest rates low as a source of inexpensive credit to fund his social program initiatives and the Vietnam War. Johnson allegedly cornered and pushed the Fed chair at the president’s Texas ranch, accusing him of lacking care for those dying in Vietnam. Bullard, current dean of the Mitch Daniels School of Business at Purdue University, was president of the St. Louis Fed from 2008-23. The Bank hired him as an economist in 1980.