WEBVTT - Former Federal Reserve Bank of Boston President Eric Rosengren Talks Government Shutdown

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. There are still some

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<v Speaker 1>concerns here about the impact of trade policies, particularly when

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<v Speaker 1>it comes to the agricultural sector. There have been multiple

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<v Speaker 1>news reports over the last a few minutes from political

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<v Speaker 1>as well as the Wall Street Journal that the Trump

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<v Speaker 1>administration is actually exploring a bailout of at least ten

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<v Speaker 1>billion dollars for US farmers. This would ostensibly be to

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<v Speaker 1>help support that drop off that we've seen from China

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<v Speaker 1>buying a lot of our goods, primarily soybean and corn.

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<v Speaker 1>And we should point out this is kind of reminiscent

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<v Speaker 1>of what we saw doing the first Trump to right

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<v Speaker 1>when he also instituted some trade policies acuse China to

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<v Speaker 1>retrench and then basically had to create some subsidies to

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<v Speaker 1>help our local farmers.

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<v Speaker 2>Right, some precedents for this, like you say, coming from

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<v Speaker 2>the first Trump administration, But as you say, the Wall

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<v Speaker 2>Street Journal reporting that looking to use tariff revenue to

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<v Speaker 2>fund that potentially ten billion dollar aid package, maybe to

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<v Speaker 2>help the soybean producers. Will continue to follow that story.

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<v Speaker 2>But as Romain mentioned, that government shutdown extending into a

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<v Speaker 2>third day, as Wall Street and Washington watched for any

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<v Speaker 2>signs of compromise coming from Congress. Question swirling right now

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<v Speaker 2>about how this could impact the Fed's easing plans as

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<v Speaker 2>another all important interest rate decision approaches later this month.

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<v Speaker 2>Joining us now to discuss and please to say, we

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<v Speaker 2>have former President of the Federal Reserve Bank of Boston,

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<v Speaker 2>Eric Rosengren. Great to have you with us, And that

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<v Speaker 2>is the question right when we think about that next

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<v Speaker 2>FED meeting. I would love to hear your perspective as

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<v Speaker 2>a former policy maker, how much did you rely on

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<v Speaker 2>alternative sources of data, private reports, for example, versus the

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<v Speaker 2>official government data that would come out about the labor market.

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<v Speaker 3>So there tends to be a focus on official government data,

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<v Speaker 3>though we certainly use data from private sources as well.

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<v Speaker 3>So for example, the ADP report that came out yesterday,

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<v Speaker 3>people would certainly look at it, but they put much

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<v Speaker 3>more weight on the employment numbers coming out of the

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<v Speaker 3>Employment Situation Report, which comes out on Friday normal circumstances,

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<v Speaker 3>but when there's a government shutdown, you have to rely

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<v Speaker 3>on whatever data you can get your hands on. So

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<v Speaker 3>I think we're in a period where more reliance on

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<v Speaker 3>private data is going to be necessary until the shutdown

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<v Speaker 3>is over, and you look at.

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<v Speaker 2>The different pieces of private data that we are getting.

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<v Speaker 2>You mentioned the ADP report that showed that private companies

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<v Speaker 2>shed thirty two thousand jobs in September. You had interesting

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<v Speaker 2>reports coming from Challenger today. You also had a separate

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<v Speaker 2>report from a company called Revellio Labs, which I admit

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<v Speaker 2>I'm not too familiar with, showing that the economy actually

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<v Speaker 2>added jobs in September. So it feels like they're all

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<v Speaker 2>telling different stories. And in your experience, I mean, how

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<v Speaker 2>good of a picture can you throw together, cobble together

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<v Speaker 2>of how the economy is actually doing from these different

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<v Speaker 2>private sources. How does that typically compare to the official

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<v Speaker 2>government data.

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<v Speaker 3>So it's certainly not optimal, particularly given that the US

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<v Speaker 3>economy in the first half the year week and relative

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<v Speaker 3>to the second half of last year. So we already

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<v Speaker 3>have consumption that grew in the first half the year

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<v Speaker 3>only by one point six percent, that was roughly half

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<v Speaker 3>of what it was the second half of last year.

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<v Speaker 3>We have government spending that's also being cut back, and

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<v Speaker 3>it looks like the consumer is pretty weak. So a

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<v Speaker 3>number of the conference board came out earlier this week

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<v Speaker 3>consumer confidence was weak, so we already know that consumption

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

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<v Speaker 3>into a shutdown where certainly government workers are not going

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<v Speaker 3>to be interested in spending very much money because they

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

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<v Speaker 3>top of that, there's a threat that a number of

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<v Speaker 3>the government workers are also going to be laid off.

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<v Speaker 3>So good reason to believe that consumption is going to

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

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<v Speaker 3>government spending in the second half year is also going

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<v Speaker 3>to be weak. So you already know that there's going

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<v Speaker 3>to be a relatively weak economy and that more than

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<v Speaker 3>likely labor markets are going to be weaker than we want.

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<v Speaker 3>The problem for the FED is that we're also seeing

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<v Speaker 3>that inflation is going up. So the PCE, which is

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<v Speaker 3>what the FED tends to focus on, particularly the core PCE,

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<v Speaker 3>was up a little bit. Is that two point nine

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<v Speaker 3>percent if you look at both private and the FED forecasts,

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<v Speaker 3>the expectation is that will end the year over three percent.

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<v Speaker 3>That is higher than the FED would like. It would

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<v Speaker 3>like a two percent inflation rate, So it's still a

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<v Speaker 3>difficult meeting for the FED because it probably has a

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<v Speaker 3>weaker employment report if we actually were to get one.

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<v Speaker 3>And it also is a situation where the inflation data

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<v Speaker 3>we've had to date, on top of the fact that

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<v Speaker 3>we know that the tariffs are beginning to flow through

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<v Speaker 3>to final goods, is the environment in which it's missing

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<v Speaker 3>both of its mandates and has to trade off those

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<v Speaker 3>two challenges.

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<v Speaker 1>I am curious about what the discussion ends up being.

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<v Speaker 1>I know we're still a long way from the next

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<v Speaker 1>FED meeting, and we still have like four weeks or

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<v Speaker 1>so before we get there. But if you go into

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<v Speaker 1>that meeting with the shutdown, and when you were Boston

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<v Speaker 1>Fed president, I think you went through at least two

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<v Speaker 1>or three government shutdown certainly the two that we had

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<v Speaker 1>in twenty eighteen, and that was a time where, if

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<v Speaker 1>I remember correctly, the FED was raising rates and trying

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<v Speaker 1>to make a decision about whether to continue to raise rates.

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<v Speaker 1>So how much does the impact of a shutdown or

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<v Speaker 1>the speculation about a shutdown affect the policy decision making.

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<v Speaker 3>Well, you know that it weakens the economy. It means

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<v Speaker 3>that GDP for that quarter is going to be weaker,

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<v Speaker 3>and if you're at a turning point like possibly we

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<v Speaker 3>are now, it runs the risk that we make a mistake.

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<v Speaker 3>So let's say that you do a twenty five basis

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<v Speaker 3>point cut because the labor markets week, even though inflation's

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<v Speaker 3>a little bit too high. If this employment report would

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<v Speaker 3>have indicated that payroll employment was declining substantially and unemployment

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<v Speaker 3>was going up rapidly, that might be an environment where

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<v Speaker 3>you'd be seriously considering fifty basis points. I think given

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<v Speaker 3>that inflation's high, it's pretty and with the data only

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<v Speaker 3>being the ADP report, it's pretty challenging for the FED

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<v Speaker 3>to make a big move without better knowledge. So there's

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<v Speaker 3>greater uncertainty, but there's uncertainty on both elements of the

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<v Speaker 3>dual mandate. I think that the FED will be pretty

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<v Speaker 3>tentative at this next meeting. We're in an environment where

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<v Speaker 3>there's still a shutdown.

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<v Speaker 1>I am curious about how much federal employment actually affects

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<v Speaker 1>our economy when we use this number of seven hundred

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<v Speaker 1>and fifty thousand folks being furloughed, and of course we're

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<v Speaker 1>now learning based on news reports that some of those

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<v Speaker 1>jobs could be actually permanently reduced. I know that's still

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<v Speaker 1>less than what a quarter I think of the total

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<v Speaker 1>federal workforce, but there has to be some sort of

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<v Speaker 1>tentacles that come out of that that affects the broader economy.

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<v Speaker 1>Is it material?

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<v Speaker 3>I think it is material. So certainly the federal workers

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<v Speaker 3>are going to cut back on their consumption patterns, whether

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<v Speaker 3>there be they don't know exactly who's going to be

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<v Speaker 3>laid off, if anyone's going to be laid off, they

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

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<v Speaker 3>But it's not just the government workers. It's also all

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<v Speaker 3>the government contractors and the private and sector employees that

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<v Speaker 3>now are not also going to be paid by the government.

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<v Speaker 3>And some of those cutbacks presumably are for the public sector,

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

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<v Speaker 3>So there's a reasonable chance that this is more extensive,

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<v Speaker 3>And given that the economy already was weak, I think

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<v Speaker 3>it does risk, depending on how it's hand, having a

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<v Speaker 3>more severe outcome than would be desirable. So the risks

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<v Speaker 3>of a recession definitely go up. When you have a shutdown,

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<v Speaker 3>you have less information, and if the economy already wasn't

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<v Speaker 3>a possible turning point, it could be a serious mistake

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<v Speaker 3>to allow the shutdown to continue for a long period

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<v Speaker 3>of time.

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<v Speaker 1>All right, Eric, really appreciate you taking time for us.

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<v Speaker 1>That's Eric Rosengren, former Boston FED President,