thank you. >> coming up, james dollars from the federal reserve bank of st. louis talks about what to expect from the economy. also, the republican agenda and the a coming 112th congress. later, on q&a, john burns, foreign correspondent and london bureau chief for "the w york times." >> joining us for "newsmakers" is james bullard. we have a lot to talk about.

i will let scott taken from here with the third question. >> the labor report showed a huge blow to job growth. the unemployment rate increased to 9.8%. does that change your perception of the recovery in this country? >> it was a weaker dollar to report that we would have liked. it is just one number. it is disappointing. hopefully, we will get better jobs numbers going forward. i will say that i think the jobs report was out of context from some of the other numbers we have seen on the economy, which seemed to indicate a little bit more strength. particularly, the holiday season is shaping up to be reasonably good. we will just have to see. it is a disappointing jobs report.

>> last month, the federal reserve announced a program to try to boost growth by buying treasury bonds. as you look at the pressure and go back you have gotten internationally and domestically, are you having second thoughts or any buyer's remorse? >> not at all. i think this program has been pretty successful. the reason i think it is successful is that most of the financial market reaction was priced in before the november 2 and november 3 meeting. if you look at the five-year yields, they declined between the chairman's speech in jackson hole and the time of the november meeting. equity prices rallied a lot. the dollar depreciate it. expected inflation increase. those are classic effect of an easing of monetary policy.

that was priced into the meeting. since the meeting, we have had mixed results. we have had renewed tensions in europe, which is a concern. we have had, other than the jobs report just now, we at had relatively good news on the u.s. economy. the reaction has been mixed up with that data. >> a lot of people say that even with this program of qeii, it will not have a huge effect on the economy. what else can be governments do to get companies to hire and invest? >> i think the line that this will not have any impact -- the litany of the financial market effect that we saw in september and october put that to rest.

it does have an impact if the fed is buying a long the treasury curve. those are the financial market effects, so they are not necessarily the real economy, real investment consumption. we know there is long and variable lag between what happens in financial markets and what happens in the real economy. i would expect the easing of monetary policy over the next six-12 months. >> what is your monetary policy. the federal reserve just released a report that showed a slow decline in unemployment. it is still in the 9% range one year from now. what is your expectation and what do you expect to see? >> on labor markets, we know

labor markets lag the rest of the economy and they are slow to move. in the last three recessions, from 1990 to 1991 and the 2001 recession, in each case, from the top of the recession out 18-24 month, labor markets recovered slowly. the last 18 months of the jobs numbers have been consistent with what we saw in '91 and -- in 1991 and 2001. it was a thought that the recession would end and labor markets would bounceback fast. that has not occurred in the u.s. for 25 years. i expect that to continue and i expect unemployment to go down slowly next year. i do think we are in good shape despite the jobs numbers. we are in good shape for 2011 and we will see faster economic

growth for 2011. a lot of industries are in fairly good position. they have a lot of cash on the sidelines. when they see opportunities, they will go ahead and invest and hire workers. pikes he came out with a paper he wrote in july thought about the risk for the u.s. to turn into a pan like situation for inflation. why wouldn't the united states look like japan in the last 10 years? >> i put this paper out in july. i said simply having our policy rate at zero -- this is two years where we have had the federal funds rate at zero -- that policy by itself is not enough in this situation. you have to supplement the zero interest rate policy with something else. the something else is quantitative easing. you must make sure you do not

end up in the japanese situation. in japan, the policy rate has not been above 1% for 15 years. what they found was that the private sector can eventually come to expect deflation, a mile to deflation, which is what has happened in japan over that timespan. you did not want to get stuck in that situation. that would exacerbate our problems in housing and real estate and exacerbate our nominal debt. we do not want to get into that situation. we want to avoid that. one way to avoid that is our aggressive quantitative easing program. >> did and japan do something like that for many years? >> they did indeed. my argument is we are using a better approach. one thing i have argued for is that we should adjust the

program as the data comes in. we have a sentence in the fomc statement that said the committee will regularly review the program. i interpret that to me that if the date is weaker, we can do more. if the date that is broader, we can pull back or positive we need to so that it is more like interest rate policy would be. in ordinary interest-rate policy, we would move the data rate. we would give forward guidance to what the committee thought it would go to in the future. we would react to incoming data and adjust the policy based on incoming data. that is something i don't think we saw much of in japan. but some say that the fed should focus on stable prices and low inflation. with that makes sense?

>> we have a dual mandate. we have always interpreted that mandates for a long time. the interpretation has been that we try to provide a stable backdrop so that the private sector can allocate resources appropriately in the economy. that is the only thing the fed can do in the long run, control the rate of inflation. you have this idea that you provide this stable backdrop to businesses and households are able to make the best decisions they can. they see the relative prices. you do not get that mixed up with changes in excess of fluctuation and other prices. what a lot of central bank did since 1977, since we have that

mandate, a lot of banks look at this since the birth of the ecb and said you should just assign a single mandate to the central banks since that is the only thing they can do in the long run. you should be serious about it and put accountability on the central banks. the originators of this concept in new zealand talked about firing the central bankers if you did not deliver something close to the inflation target. that is the way to get credibility and accountability for the central bank. i am open to having that debate. i think it does clarify what the central bank can and cannot do in the long run. >> with this quantitative easing program, it is going to be pushing its balance sheet over $3 trillion. how does the fed get out of this? one of your colleagues have suggested that this new policy will complicate the fed's exit

strategy from its record balance sheet. >> president plosser is right to emphasize that we have complicated our exit strategy. i think the policy will outweigh the risk. we have got a lot about at its over the last two years. we do have ideas about how to do it. one is that we have a new tool that we have not exported plea had, which is the ability to pay -- we have not historically had, which is the ability to pay interest on reserves. we also have a term deposit system to soak up reserves. if nothing else, we can also sell into the market. we can sell our portfolio of treasury securities in an orderly way and in a measured way that does not disturb the market. we can get the balance sheet

down that way. there are many ways we can approach exits. plosser is right to emphasize that is a risk for us. >> this week, congress mandated a bunch of records to be released. we spent a good part of the week chewing over these and try to make sense of them. it shows that all kinds of financial institutions and foreign banks receive loans. what are the risks for the fed and the country having made all these loans? are you confident that the moral hazard problems are being dealt with? >> we did make a lot of loans. we did not lose any money on any of those so far. i like to divide the monetary policy that has occurred since 2008 into three parts. one is the liquidity requirements.

another is the mortgage backed securities program. all that is in the context of having the policy rate down close to zero. the liquidity programs part, as far as the amount of lending outstanding at a point in time, peaked at $1.60 trillion. that is the north i have been speaking about. it was pretty successful. when there was a financial crisis, the thing for the central bank to do over a broad hundred years is to lend out collateral at 8 guilty rates. that is essentially what we did. as the crisis of cited, the borrowers found that the terms being offered were not any good. they could be better in the private sector. these programs went away. they were close in the first some time ago -- they were close to some time ago.

i would contrast that to what has happened in europe. the ecb lent to financial institutions. their lending is still outstanding. those banks in europe are continuing to roll over their loans. the ecb has decided to continue this program into 2011. we put the liquidity out there during crisis. we did not lose any money on these loans. this is the kind of thing you should do during a crisis. >> you mentioned the european crisis a couple of times. it spreads from one country to another. how much risk is there to the united states and what are you

doing to understand those risks? >> the crisis has been ongoing and hit its most intense point in the april-may period of this year. this is going to roll on for some time. it takes time to put a fiscal program in place and for a country to regain credibility in the international financial markets. the various countries have made efforts to do the fiscal entrenchment with varying degrees of success. with ireland, it was not working as well as they had hoped. that has identified the situation. i think europeans are determined to keep europe

together and keep the zero together in particular. markets may be underestimating the will of the europeans. they are determined. they put together packages that are credible. the ecb is also buying debt of some of the sovereign in europe. they could do more of that if it becomes necessary. they will be able to contain this. in the u.s., we are watching this closely. i think europeans are making progress. >> you said the fed did not lose any money on these lending programs. there are $2 trillion of mortgage-backed securities on the fed's balance sheet. isn't the fed going to take losses when you have to sell these assets lower prices?

>> these liquidity crisis have already closed the mortgage- backed securities program. the mortgage-backed securities purchases -- which were new issue 2009 mortgage-backed securities, not the ones from 2007 and 2006 that caused so much problem -- so many problems. we bought the new issue. we are alleging that run off of the balance sheet. it was off of its peak early there's -- peaked early this year. -- peak early this year. we lend it out against collateral. the institution has to have its collateral on file when we do

this. we do not let them borrow up to 100%, only some fraction of the collateral. we give them a loan. the loans are short-term, sometimes 30 days. sometimes 90 days. at the end of that term, they give the cash back and we head the collateral back to them and shred the cash. -- hand the collateral back to them and shred the cash. individual parties in the private sector do not trust one another. in that case, it is good to follow the standard in central banking 400 of years. >> what would you like to see in fiscal policy out of congress? >> i would like to see a longer

this policy in the united states. what is happening in europe shows what happens when the international market loses faith that you cannot repay your loans. that is what is happening to these smaller european countries. the u.s. is the big kid on the block. we have tremendous credibility in the international markets. you do not want to press that to heart -- press that too hard. we need to get our longer run fiscal situation under control. i do not have specific

recommendation. i try to stay out of the political debate. it is imperative that we take the lesson from europe to heart. in the united kingdom, they have been aggressive in trying to retrench its goalie to get their fiscal house in order. it is important -- to get its fiscal house in order. >> we have reported that the incoming head of the house oversight committee is going to take a look at shortening the lag time. what kind of delay would you be comfortable with or release of the transcripts? -- for release of the transcripts? >> i was not aware this would come up. we provided minutes on a fairly detailed summary of the meeting quickly after the meeting as soon as we can put it together

and get it approved by the whole committee. the five-year lag is something we can look at. we want to keep those deliberations open and honest and as forthright as possible. you want to release the information once it is not likely to have much impact in financial markets. one of the unfortunate consequences of the way we have handled this crisis is that bigger institutions got even bigger. you have bank of america, which has merged with merrill lynch.

there are other types of mergers like that at the top. i worry that these institutions are too big to manage. i worry that they are too complicated to regulate effectively. i do not think they need to be that big to compete in global markets. i think some people have the idea that because there are big firms in the u.s., there is microsoft in google and they have got --therefore you have to have big banks in the u.s. large firms have plenty of cash on their own and have access to capital markets. they have to be doing something

else in the u.s. markets and in the international markets. i doubt that they need to be as big as they are. the biggest problem for the u.s. is whether -- are these firms considered too big to fail. i think they probably are at this point. despite efforts in the legislature, real and genuine effort to try to reduce too big to fail, at this juncture, i think we have too big to fail institutions. we should think about what we can do to mitigate that going forward. the taxpayers are on the hook if these big firms, which are hard to manage, get into trouble again. we do not want that situation. i do not think anybody in either party in congress was that situation. we have to think up a better way to mitigate that going forward.

>> not too long after this interview will air, chairman bernanke will be on "60 minutes" discussing the fed policy with the american people. is this a strategy that the fed is doing to get its message tellout better? >> the german has been on ever before. -- the chairman has been on air before. we have tried different venues and different ways to communicate fed policy to the public. we look at what other central banks do. i think you know that john claude -- jean-claude to shea of the ecb has done a lot of -- jean-claude patricitrichet of tb has done a lot of interviews.

this is another way to get our message out and talk affectively about monetary policy. one other comment on this is that these are far from ordinary times for monetary policy. if we were in our normal interest-rate trading environment and each team was about whether we were going to nudge interest rates up or down a little bit, then i think our communications strategy would probably be fine for that. since we are in such an unusual situation and it looks like we will be here for a while, we probably have to look at more effective ways to communicate. we have special programs that are still operating and we have to somehow get these ideas and get the and standing of these ideas out the general public and let the debate flow. i am happy to let everyone tell us what they think. but i think that is a healthy

debate to have. but in order to have it, we have to get the right information out there. >> we want to say thank you to james bullard. >> thank you so much for having me. i really appreciate it. >> glad to have you. we will carry on for a least a couple more minutes with our guests in our studio. they are neil burling from "the washington post." irwin from "the washington post critic tom >> he seems pretty -- "the washington post." >> he seems pretty confident. that is the right policy and it will help the economy. there is a fair sense that this economy is going out of the

woods. the jobs report friday was one sign of weakness. things are picking up a little bit, but probably not enough to have a robust jobs market like everyone would like. >> he is clearly not happy with the jobs report. it was much worse than expected. it was disappointing. the fed emphasizes that it does not base policy decisions on one meeting. with their decision to buy $600 billion in treasuries, in part to protect against the downside risk to the economy and to deflationary, if we see more numbers like we saw in this particular report, you could start seeing people start talking about whether the fed will have to buy even more treasury's. >> our guest, mr. bullard, talked about a longer-term view

from congress. let's talk about the coming months, with a new congress employs, we know the commission has been struggling to achieve its 14 votes. >> fed officials try not to double to much in fiscal policy. they do not want to tell congress what to do and they do not want congress to tell them what to do. there is very much a sense of that finding a long-term path to a stronger fiscal situation for the u.s. government is very important. it can help keep interest rates from rising. that is very much on their agenda. i expect chairman bernanke welle voice some concerns -- i expect chairman bernanke will voice some concerns he has already. encourages -- he could suggest that, hey, callers, it is time to come up with an agenda. >> whether the fed and other

central banks should be more aggressive in pushing for fiscal policy measures, since the central banks tend to be respected authorities in general, on the economy, some people may differ on that. the question is how aggressive does chairman bernanke and federal officials want to get in pushing for anything more aboutic than cookintalking long-term deficits and stimulus in the short run? >> you look at the perception of the fed image and ben bernanke going on "60 minutes." what is the perspective money work of the fed did what it should and should not be responsible for? where are we? are their actions in congress toward the fed that we should know about? -- are there actions in congress toward the fed that we should know about? know about? >>