Former Boston Fed President Eric Rosengren Talks US Economy

SPEAKER_1 (0:02)

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SPEAKER_2 (0:13)

The payrolls report is now behind us while the October Fed meeting looms with policymakers set to gather at the end of this month. Our next guest expects another 25 basis point rate hike before the year end. Eric Rosengren is the former Boston Fed president, and he joins us now. Eric, it's great to speak with you.

I guess where I want to start off with is to get a sense of whether you think the economy is strong or weak. It's kind of hard to get a handle on it because you've got low consumer confidence, that weaker jobs report last week, yet solid PMI and corporate earnings growth, of course, are expected to be impressive yet again.

Eric Rosengren (0:48)

Yes. The way I describe it is it's a middling economy. Inflation has come down a little bit more than I think the committee thought it would at the September meeting.

The labor market, the last employment report was a little bit on the weak side. But the unemployment rate is still very close to full employment estimates that most economists have. And initial claims for unemployment, which would be an indicator of people being laid off, is still quite low by historical standards. So we're having reasonable growth, but obviously it depends on what part of the economy you're in, how you're being affected by oil prices and the inflation that we've seen over the last year.

SPEAKER_2 (1:32)

Okay, so when you put it all together, what's the level of urgency for that next rate hike?

Eric Rosengren (1:39)

So the committee thought at the September meeting that they'd need one additional hike. We have two meetings left in the year. One is right before the midterms, one is at the end of the year.

I think the committee is going to be comfortable not doing something right before the midterm and waiting to the end of the year, see how the data comes in, and see if that additional hike is actually necessary.

SPEAKER_3 (2:06)

And if you were a voting member, how would you act? What would be your plan for the next, through the rest of this year?

Eric Rosengren (2:13)

Yeah, I would probably do exactly that. The inflation rate is still relatively high. The Fed's target is 2%.

The PCE inflation rate is 3.4%.

So we're well above target, and that target has been missed for the last five and a half years. So I think there is a reason to try to bring inflation down more quickly. I don't think it's so urgent that you have to do it at every meeting, and the committee's already kind of made clear they only thought one more tightening was going to be necessary after the September meeting. I would also say some of the Fed speakers didn't seem to think there was urgency, and I pretty much agree with that. I think there'll be enough disruptions around the midterm election that waiting till the end of the year is completely appropriate.

SPEAKER_3 (3:01)

So following the September rate hike, you had pushback on Donald Trump's claim that he gave Fed Chair Kevin Warsh a hall pass to raise rates. How concerned are you about the public perception of Fed independence?

Eric Rosengren (3:17)

I think that is a challenge, and the administration makes it more difficult. I think it was a positive sign that the committee voted unanimously to tighten in September, and I think that was the right action to take. And I think that if we see more tightening, if inflation stays higher than they want, I think people will get more comfortable that the committee is going to operate independently from the administration.

But I do expect significant pushback from the administration if it's necessary for the Fed to continue tightening.

SPEAKER_2 (3:51)

Yeah, I would expect a pushback. In any case, given that we know the president has a certain point of view, we have a lot of Fed speakers out there kind of sharing their perspective. Can we take FedSpeak as a new forward guidance, given that Chair Kevin Warsh doesn't provide any and doesn't want to provide any?

Eric Rosengren (4:10)

Yeah, I would say that actually having the two vice chairs go out and give speeches saying that there was an urgency in raising rates is basically forward guidance. So I think he's going to be less inclined to do that.

But I think they were concerned that markets were implying much more tightening than they thought was necessary given economic conditions. And so, when both the vice chairs come out and give a speech saying there's no urgency, you should pay attention to that. It probably means it's unlikely the committee will do anything right before the midterms.