Former Boston Fed President Eric Rosengren Talks US Retail Sales

**SPEAKER_1** (0:02)
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**Romaine Bostick** (0:07)
Let's bring in Eric Rosengren. He's the former president of the Boston Federal Reserve. And Eric, I do want to start with the state of the consumer, and we'll get to inflation in a second. But I was looking at that retail sales number today, that contraction overall. Gas and autos obviously drag down a lot of it, online sales too. But I looked at restaurants, that was up. So we're still spending somewhere. And there were a lot of other categories that seem to suggest the consumer is still spending.
What does a debate look like amongst Fed members when you kind of have data, even in one report and even the trend line, that seems to kind of, let's just say, conflict with each other?

**Eric Rosengren** (0:42)
So the Fed doesn't focus just on one number, it does tend to focus on a trend. But I think a weaker retail sales number is consistent with what we've been seeing in consumption for the first half of the year. So if you look at consumption over the first two quarters, it only grew at one and a half percent. So that's weaker than the overall economy, it's a lot weaker than what's been happening in investment. So we have an economy where kind of AI and tech investment are driving investment spending, but the consumer has been buffeted by higher oil prices, maybe some concerns about what's going on in the Middle East. And as a result, they've been somewhat more reluctant to buy, particularly for those low-income individuals who are likely to be more strapped by the oil prices going up. So I think the picture that this retail sales provides is pretty consistent with consumption that's not really driving the economy.
Right now, what's really driving the economy is investment spending.

**Romaine Bostick** (1:48)
Well, I'm curious, does that worry you at all, or is this just sort of the natural cycles that the economy goes through from time to time?

**Eric Rosengren** (1:58)
Well, if the consumer was a little bit, I mean, consumption is an important component of GDP.
It's roughly two-thirds of spending is two-thirds of all GDP. So anytime consumption slows down, economists tend to pay attention. But I think what we have is somewhat different balance than we normally see, particularly in an environment where the stock market has been going up so strongly. So the economy is growing probably at the appropriate rate overall, maybe a little bit weaker than we'd like. And a lot of that is because the consumer has continued to be somewhat lethargic.

**Isabelle Lee** (2:36)
What about inflation? It's now at around 3.4 percent. I mean, that's well above the Fed's 2 percent target. How do you make the case of why the Fed should cut rates with inflation this sticky?

**Eric Rosengren** (2:48)
So, I think the debate is really going to be about whether the Fed should raise rates or leave them the same. As you point out, the CPI number that came out at the beginning of this week at 3.4 percent is well above the Fed's target. I think those that are willing to wait are arguing that when you take out food and energy, shelter has not been going up nearly as rapidly, and it's not widespread increases. So they think as oil prices come down, we'll see the overall inflation rate come down. I think the other side of the argument is that the Fed has been hoping that inflation would come down more naturally by waiting for five years now, and it hasn't happened. And so I think there's a subset of the committee that is concerned that we keep expecting inflation to come down.
But when we get through a couple quarters, we find that once again, the Fed has missed its target by a significant amount. So I think for those that are concerned that inflation has been quite high, they're probably still going to have that concern. And for those who want to wait, I think they're still going to argue that it's being driven primarily by oil prices and that when oil prices come down, that there'll be less concern about inflation.

**Isabelle Lee** (4:13)
And you made a point that the Fed usually takes a look at the data in their totality. But on one hand, you have higher inflation, and on the other, you have a weakening consumer. Which do you think, if you were just to pick between the two, is scaring the Fed more?

**Eric Rosengren** (4:26)
Well, I think right now, they're pretty focused on inflation. So if you look at the press conference that the chair provided after the FOMC, he emphasized that the committee was quite focused on getting an inflation rate back to 2%.