Former St. Louis Fed President James Bullard said the Federal Open Market Committee (FOMC) is “almost perfectly split down the middle” over whether to raise rates next month. Even if policymakers hold rates steady, they may deliver hawkish signals. He also noted that rising gold prices are acting as a market scorecard for Fed credibility, and overseas central banks favour physical gold over Bitcoin this year.
In an interview on Friday, Bullard described the committee’s internal divide as roughly “10‑to‑9”, adding “many on the fence could be persuaded to swing either way”. He is one of few former officials this week to publicly offer a reading of FOMC internal sentiment.
Markets have rapidly repriced amid these remarks. After Fed Chair Kevin Warsh stated at Jackson Hole that central banks bear “clear responsibility” for 65‑month‑long elevated inflation, the CME FedWatch tool showed September rate‑hike odds jumped from around 36% to roughly 60%, while rate‑cut probabilities fell nearly to zero. Two‑year Treasury yields rose 9 bASIs points; the 30‑year yield was little‑changed near 5.1%. Foreign‑exchange moves were sharper: the euro fell 1.6% and the yen headed toward the 160 threshold.
Deepening Divisions Within the Fed
According to published voting records, the FOMC kept rates unchanged on July 29 by a 9‑3 vote, marking the fifth consecutive hold. Beth Hammack of the Cleveland Fed, Lorie Logan of the Dallas Fed and Neel Kashkari of the Minneapolis Fed all voted for a rate increase. Kansas City Fed President Jeff Schmid also signalled this week he may align with that hawkish camp.
Bullard, who headed the St. Louis Fed from 2008 to 2023 and dissented in March 2022 in favour of a 50‑bASIs‑point hike plus balance‑sheet runoff, argues public votes do not fully reflect true committee sentiment. He currently serves as Dean of Purdue UniveRSIty’s Daniels School of Business.
September Meeting Is Not Simply “Hike or Hold”
Bullard stressed markets should not frame next month’s decision as a binary choice. “You can hold rates steady and still be hawkish. You can send signals pointing to action at the October or December meetings,” he said.
The September gathering includes quarterly economic projections and dot‑plot updates, meaning officials will publish year‑end rate expectations. “Ironically, September offers the most forward guidance, because the dot‑plot tells you where the federal‑funds rate will be at end‑2026,” he observed. “That effectively communicates policy intentions for the current meeting plus the following two.”
Bullard expects the dot‑plot may project one, possibly two more rate hikes before year‑end. Even without a September move, the Fed can communicate a further tightening path to markets. Traders price for discrete events, while the Fed may map out a policy trajectory.
He added he had thought Warsh might scrap the dot‑plot entirely on Friday, which did not happen. Asked whether risks are greater from “projecting a hiking path that goes unfulfilled” versus “hard‑hitting rhetoric with no published path”, Bullard declined to pick sides: “I would call it 50‑50.”
In his view, Warsh opposes overly specific forward‑guidance commitments, not forward guidance itself. “If he comes out and says ‘we will definitely act in September’ or ‘we will definitely not act in September’, that over‑prescribes what the committee will actually do and can get the body into trouble,” Bullard commented. During his tenure he also resisted calendar‑locked policy pledges, because “data do not always unfold as anticipated and you can get boxed in”.
Gold as a Credibility Gauge
For Bullard, arguments for additional tightening do not hinge solely on the next data release. The Fed itself acknowledges core PCE inflation will, at best, only approach 3% by year‑end, a reading “very similar” to December 2023, December 2024 and December 2025. “Virtually no progress has been made across those three years,” he pointed out.
Latest US PCE data show headline PCE rose 3.7% year‑on‑year, with an annualised 4.1% increase over the past six months, indicating recent inflation momentum outpaces full‑year averages.
On gold, Bullard stated plainly that rising prices may signal eroding market confidence in Fed credibility. “Gold remains an indicator that can reflect lack of faith in the Fed,” he said. “Typically when that credibility is eroded, gold prices go up. So there is a genuine signal there, and it certainly belongs on the radar screen.”
He noted foreign central banks are major gold buyers, having run net purchases for two decades and holding more than one billion ounces in aggregate. Bullard remarked this receives limited discussion inside the US but matters more abroad: foreign reserve managers may prefer gold over US Treasuries, and some institutions are diveRSIfying away from Treasury exposure.
He frames this behaviour as reserve‑portfolio management rather than political signalling. After the ASIan financial crisis, reserve holders needed liquid assets, and gold now satisfies that requirement for a growing number of central‑bank institutions.
Bullard brought up Bitcoin unprompted, observing that the asset billed as “virtual gold” has failed to win favour among overseas central banks over the past twelve months. “Physical gold has turned out to be more desirable than Bitcoin for these foreign central‑bank entities,” he said. “Bitcoin still has a long way to go if it wants to compete on this dimension.”
Revaluation of US Official Gold Reserves Back in Focus
Bullard also addressed accounting treatment for America’s official gold stockpile. The US government holds roughly 261 million ounces of gold still carried on the books at $42.22 per ounce, a figure only Congress can revise, giving a book value of about $11 billion. Marked at Friday’s market price, those holdings exceed $1 trillion.
Asked about mark‑to‑market revaluation, he commented: “Why not mark‑to‑market? Everyone knows market prices, you see them every day. Mark‑to‑market is nearly always preferable to allowing book values to distort reality.” He nonetheless emphASIsed book values should also move lower should prices fall sharply, and any formal change “would likely fall to Congress”.
Long‑End Yields Hard to Suppress via Technical Tools
On fiscal and bond‑market dynamics, Bullard argued elevated long‑term yields stem from structural forces unlikely to be reversed by technical operations alone. Starting September 9, the US Treasury will increase 10‑year to 30‑year bond repurchases from $2 billion to $4 billion per operation, nearly doubling the size of the programme launched in 2024 to improve liquidity for off‑the‑run securities.
US Treasury Secretary Scott Bessent has described prevailing yield levels as “misaligned”. Bullard acknowledged the Treasury may manage its debt portfolio as it sees fit, with the Fed treating those actions simply as input variables. He shares the view of investor Stan Druckenmiller, who publicly opposed the repurchase plan this week, doubting it will deliver meaningful effects.
“In this enormous global market, intervention is difficult with so many overseas buyers present,” he said. “These are tactical moves. Markets price fundamental policies, not day‑to‑day tactics. I do not expect them to alter long‑run trends.”
Bullard identified fiscal deficits as the core problem. “Essentially Congress and the President are borrowing heavily. Six‑percent deficits stretch into the foreseeable future,” he stated. “There appears to be zero political will to contain these shortfalls.” Total federal debt surpassed $40 trillion this month, with publicly held federal debt around $32.3 trillion. Bullard projects publicly held debt‑to‑GDP could rise to 120% or even 150%.
Pressed whether defending Fed independence means hiking even when it substantially raises Washington’s interest expenses, he replied directly: “Absolutely, without question.” He added: “Every politician I have encountered thinks rates ought to be lower no matter where they stand. Even at zero‑bound rates, lobbyists pressed for further cuts.”
Data Reliability and Market Pricing
Bullard also questioned the reliability of certain economic statistics, non‑farm payrolls in particular. Concurrent with Warsh’s speech, the Bureau of Labor Statistics released annual benchmark revisions showing 790,000 fewer jobs than previously reported, roughly one‑tenth of the total. Private‑sector employment was revised down by 1.78 million while government payrolls were revised upward by 990,000.
“You cannot trust non‑farm payrolls the way you could decades ago because immigration policies have shifted dramatically,” Bullard said. “Payroll gains should no longer be thought of as 100,000 or 150,000 per month; zero is more plausible. Negative monthly prints must be accepted, and can still coexist with a healthy labour market.”
He advised investors to follow broader indicators such as the Kansas City Fed Labour‑Market Conditions Index, which, in his reading, signals an economy “broadly in balance”.
The same day, UniveRSIty of Michigan survey data showed household one‑year inflation expectations at 4% and 5‑10‑year expectations at 3.3%, with consumer sentiment falling to 51.7%. While Warsh described inflation expectations as “well‑anchored”, Bullard prefers market‑implied pricing. “I listen to markets. Real money is on the line directly pricing inflation risks,” he remarked. By contrast, he holds that Michigan survey readings “have lost credibility in recent years”, as respondents increASIngly reflect political sentiment rather than pure inflation expectations.
Bullard closed by noting Warsh’s Friday address put money‑supply aggregates back onto the policy agenda, which he does not dismiss as rhetoric. M2 surged in 2020‑2021 then contracted sharply, prefiguring the subsequent inflation trajectory. Taken together, he portrays the Fed as an institution that accepts responsibility for five‑and‑a‑half years of high inflation yet cannot agree on remedies, harbours doubts over key datasets, and operates within a fiscal environment where no political faction wants deficit reduction.
Precious‑metals markets reacted swiftly to heightened hawkish policy expectations. Spot gold settled at $4450.90 per ounce Friday afternoon, down $148.60 or 3.23% on the day, sharply off an intraday high of $4629.10 oz, with a full‑day trading range of $178. Silver fell 4.21% to $66.21 oz after touching $71.23 and breaking below $70. Platinum dropped 1.08% to $1824, while palladium bucked the trend and rose 4.95% to $1400.
In the near‑term, higher expected policy rates weigh on non‑yielding assets. Still, Bullard reminds markets: if gold continues functioning as a central‑bank‑credibility scorecard, what truly matters is not whether rates rise at any single meeting, but what that scorecard reads one year from now.