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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. There are still some

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Speaker 1: concerns here about the impact of trade policies, particularly when

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Speaker 1: it comes to the agricultural sector. There have been multiple

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Speaker 1: news reports over the last a few minutes from political

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Speaker 1: as well as the Wall Street Journal that the Trump

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Speaker 1: administration is actually exploring a bailout of at least ten

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Speaker 1: billion dollars for US farmers. This would ostensibly be to

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Speaker 1: help support that drop off that we've seen from China

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Speaker 1: buying a lot of our goods, primarily soybean and corn.

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Speaker 1: And we should point out this is kind of reminiscent

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Speaker 1: of what we saw doing the first Trump to right

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Speaker 1: when he also instituted some trade policies acuse China to

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Speaker 1: retrench and then basically had to create some subsidies to

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Speaker 1: help our local farmers.

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Speaker 2: Right, some precedents for this, like you say, coming from

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Speaker 2: the first Trump administration, But as you say, the Wall

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Speaker 2: Street Journal reporting that looking to use tariff revenue to

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Speaker 2: fund that potentially ten billion dollar aid package, maybe to

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Speaker 2: help the soybean producers. Will continue to follow that story.

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Speaker 2: But as Romain mentioned, that government shutdown extending into a

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Speaker 2: third day, as Wall Street and Washington watched for any

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Speaker 2: signs of compromise coming from Congress. Question swirling right now

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Speaker 2: about how this could impact the Fed's easing plans as

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Speaker 2: another all important interest rate decision approaches later this month.

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Speaker 2: Joining us now to discuss and please to say, we

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Speaker 2: have former President of the Federal Reserve Bank of Boston,

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Speaker 2: Eric Rosengren. Great to have you with us, And that

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Speaker 2: is the question right when we think about that next

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Speaker 2: FED meeting. I would love to hear your perspective as

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Speaker 2: a former policy maker, how much did you rely on

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Speaker 2: alternative sources of data, private reports, for example, versus the

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Speaker 2: official government data that would come out about the labor market.

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Speaker 3: So there tends to be a focus on official government data,

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Speaker 3: though we certainly use data from private sources as well.

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Speaker 3: So for example, the ADP report that came out yesterday,

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Speaker 3: people would certainly look at it, but they put much

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Speaker 3: more weight on the employment numbers coming out of the

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Speaker 3: Employment Situation Report, which comes out on Friday normal circumstances,

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Speaker 3: but when there's a government shutdown, you have to rely

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Speaker 3: on whatever data you can get your hands on. So

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Speaker 3: I think we're in a period where more reliance on

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Speaker 3: private data is going to be necessary until the shutdown

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Speaker 3: is over, and you look at.

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Speaker 2: The different pieces of private data that we are getting.

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Speaker 2: You mentioned the ADP report that showed that private companies

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Speaker 2: shed thirty two thousand jobs in September. You had interesting

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Speaker 2: reports coming from Challenger today. You also had a separate

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Speaker 2: report from a company called Revellio Labs, which I admit

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Speaker 2: I'm not too familiar with, showing that the economy actually

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Speaker 2: added jobs in September. So it feels like they're all

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Speaker 2: telling different stories. And in your experience, I mean, how

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Speaker 2: good of a picture can you throw together, cobble together

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Speaker 2: of how the economy is actually doing from these different

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Speaker 2: private sources. How does that typically compare to the official

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Speaker 2: government data.

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Speaker 3: So it's certainly not optimal, particularly given that the US

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Speaker 3: economy in the first half the year week and relative

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Speaker 3: to the second half of last year. So we already

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Speaker 3: have consumption that grew in the first half the year

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Speaker 3: only by one point six percent, that was roughly half

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Speaker 3: of what it was the second half of last year.

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Speaker 3: We have government spending that's also being cut back, and

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Speaker 3: it looks like the consumer is pretty weak. So a

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Speaker 3: number of the conference board came out earlier this week

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Speaker 3: consumer confidence was weak, so we already know that consumption

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Speaker 3: probably won't be all that strong, and then we're going

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Speaker 3: into a shutdown where certainly government workers are not going

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Speaker 3: to be interested in spending very much money because they

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Speaker 3: don't know when they're going to get paid. And on

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Speaker 3: top of that, there's a threat that a number of

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Speaker 3: the government workers are also going to be laid off.

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Speaker 3: So good reason to believe that consumption is going to

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Speaker 3: continue to be weak. Certainly, if they're both shutdown and layoffs,

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Speaker 3: government spending in the second half year is also going

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Speaker 3: to be weak. So you already know that there's going

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Speaker 3: to be a relatively weak economy and that more than

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Speaker 3: likely labor markets are going to be weaker than we want.

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Speaker 3: The problem for the FED is that we're also seeing

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Speaker 3: that inflation is going up. So the PCE, which is

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Speaker 3: what the FED tends to focus on, particularly the core PCE,

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Speaker 3: was up a little bit. Is that two point nine

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Speaker 3: percent if you look at both private and the FED forecasts,

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Speaker 3: the expectation is that will end the year over three percent.

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Speaker 3: That is higher than the FED would like. It would

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Speaker 3: like a two percent inflation rate, So it's still a

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Speaker 3: difficult meeting for the FED because it probably has a

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Speaker 3: weaker employment report if we actually were to get one.

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Speaker 3: And it also is a situation where the inflation data

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Speaker 3: we've had to date, on top of the fact that

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Speaker 3: we know that the tariffs are beginning to flow through

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Speaker 3: to final goods, is the environment in which it's missing

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Speaker 3: both of its mandates and has to trade off those

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Speaker 3: two challenges.

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Speaker 1: I am curious about what the discussion ends up being.

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Speaker 1: I know we're still a long way from the next

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Speaker 1: FED meeting, and we still have like four weeks or

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Speaker 1: so before we get there. But if you go into

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Speaker 1: that meeting with the shutdown, and when you were Boston

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Speaker 1: Fed president, I think you went through at least two

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Speaker 1: or three government shutdown certainly the two that we had

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Speaker 1: in twenty eighteen, and that was a time where, if

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Speaker 1: I remember correctly, the FED was raising rates and trying

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Speaker 1: to make a decision about whether to continue to raise rates.

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Speaker 1: So how much does the impact of a shutdown or

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Speaker 1: the speculation about a shutdown affect the policy decision making.

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Speaker 3: Well, you know that it weakens the economy. It means

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Speaker 3: that GDP for that quarter is going to be weaker,

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Speaker 3: and if you're at a turning point like possibly we

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Speaker 3: are now, it runs the risk that we make a mistake.

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Speaker 3: So let's say that you do a twenty five basis

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Speaker 3: point cut because the labor markets week, even though inflation's

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Speaker 3: a little bit too high. If this employment report would

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Speaker 3: have indicated that payroll employment was declining substantially and unemployment

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Speaker 3: was going up rapidly, that might be an environment where

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Speaker 3: you'd be seriously considering fifty basis points. I think given

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Speaker 3: that inflation's high, it's pretty and with the data only

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Speaker 3: being the ADP report, it's pretty challenging for the FED

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Speaker 3: to make a big move without better knowledge. So there's

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Speaker 3: greater uncertainty, but there's uncertainty on both elements of the

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Speaker 3: dual mandate. I think that the FED will be pretty

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Speaker 3: tentative at this next meeting. We're in an environment where

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Speaker 3: there's still a shutdown.

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Speaker 1: I am curious about how much federal employment actually affects

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Speaker 1: our economy when we use this number of seven hundred

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Speaker 1: and fifty thousand folks being furloughed, and of course we're

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Speaker 1: now learning based on news reports that some of those

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Speaker 1: jobs could be actually permanently reduced. I know that's still

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Speaker 1: less than what a quarter I think of the total

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Speaker 1: federal workforce, but there has to be some sort of

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Speaker 1: tentacles that come out of that that affects the broader economy.

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Speaker 1: Is it material?

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Speaker 3: I think it is material. So certainly the federal workers

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Speaker 3: are going to cut back on their consumption patterns, whether

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Speaker 3: there be they don't know exactly who's going to be

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Speaker 3: laid off, if anyone's going to be laid off, they

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Speaker 3: don't know how long they're not going to be paid for.

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Speaker 3: But it's not just the government workers. It's also all

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Speaker 3: the government contractors and the private and sector employees that

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Speaker 3: now are not also going to be paid by the government.

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Speaker 3: And some of those cutbacks presumably are for the public sector,

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Speaker 3: but they're also maybe cutbacks in contracting to the private sector.

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Speaker 3: So there's a reasonable chance that this is more extensive,

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Speaker 3: And given that the economy already was weak, I think

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Speaker 3: it does risk, depending on how it's hand, having a

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Speaker 3: more severe outcome than would be desirable. So the risks

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Speaker 3: of a recession definitely go up. When you have a shutdown,

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Speaker 3: you have less information, and if the economy already wasn't

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Speaker 3: a possible turning point, it could be a serious mistake

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Speaker 3: to allow the shutdown to continue for a long period

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Speaker 3: of time.

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Speaker 1: All right, Eric, really appreciate you taking time for us.

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Speaker 1: That's Eric Rosengren, former Boston FED President,