1 00:00:02,320 --> 00:00:06,680 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:06,800 --> 00:00:08,840 Speaker 2: Let's get to our next guests. They former Boston FED 3 00:00:08,880 --> 00:00:11,360 Speaker 2: president Eric Rosenngrant joined US now for more. Eric, welcome 4 00:00:11,400 --> 00:00:14,239 Speaker 2: back to the program sir. There's the data abs and 5 00:00:14,320 --> 00:00:18,080 Speaker 2: payrolls on Friday. How would you approach an FMC meeting 6 00:00:18,120 --> 00:00:19,760 Speaker 2: like the one week get next week? 7 00:00:21,480 --> 00:00:24,640 Speaker 3: Well, first, as Mike highlighted, it's a pretty noisy number. 8 00:00:25,720 --> 00:00:30,360 Speaker 3: It's partly noisy because a lot of behavior changed to 9 00:00:30,440 --> 00:00:34,080 Speaker 3: reflect the fact that the tariffs were telegraphed. So people 10 00:00:34,120 --> 00:00:37,360 Speaker 3: didn't know the extent of the tariffs. They didn't know 11 00:00:37,640 --> 00:00:40,920 Speaker 3: exactly the distribution around countries, but they didn't know that 12 00:00:41,000 --> 00:00:43,280 Speaker 3: tariffs were coming, and there were certain sectors that you 13 00:00:43,280 --> 00:00:47,840 Speaker 3: would have expected to be tariffed. As a result, many 14 00:00:47,920 --> 00:00:51,920 Speaker 3: people and many firms stockpiled ahead, tried to get ahead 15 00:00:51,920 --> 00:00:55,040 Speaker 3: of the tariffs, and that shows up in imports, that 16 00:00:55,080 --> 00:00:58,960 Speaker 3: shows up in inventories, which is exactly what you're seeing 17 00:00:59,000 --> 00:01:03,320 Speaker 3: in the data. So what it does reflect is enough 18 00:01:03,400 --> 00:01:07,400 Speaker 3: concern that many people and many organizations try to front 19 00:01:07,440 --> 00:01:11,160 Speaker 3: run the tariffs. Now, in terms of going forward, this 20 00:01:11,240 --> 00:01:14,000 Speaker 3: doesn't include any of the information from the so called 21 00:01:14,040 --> 00:01:18,680 Speaker 3: Liberation Day, so people didn't know during the first quarter 22 00:01:18,800 --> 00:01:22,160 Speaker 3: exactly what the tariff situation was going to be, and 23 00:01:22,240 --> 00:01:25,800 Speaker 3: I think most people were surprised by how significant the 24 00:01:25,840 --> 00:01:28,880 Speaker 3: tariffs were. So I think what we're seeing now is 25 00:01:28,920 --> 00:01:32,319 Speaker 3: the positioning going into Liberation Day, and we're going to 26 00:01:32,360 --> 00:01:36,520 Speaker 3: still need some additional data after the beginning of April 27 00:01:36,840 --> 00:01:39,200 Speaker 3: to get a better sense of how much weak are 28 00:01:39,240 --> 00:01:41,520 Speaker 3: the economy is going to be. But I would say 29 00:01:41,520 --> 00:01:44,800 Speaker 3: the high frequency data that are coming in are highlighting 30 00:01:44,880 --> 00:01:49,160 Speaker 3: that the Chinese tariffs in particular are basically acting like 31 00:01:49,200 --> 00:01:52,400 Speaker 3: an embargo, and that means that it's very likely that 32 00:01:52,440 --> 00:01:55,400 Speaker 3: they're going to be much higher prices in some shortages 33 00:01:55,440 --> 00:01:58,760 Speaker 3: of goods that are primarily imported from China. 34 00:01:59,040 --> 00:02:01,000 Speaker 2: Eric, what's the timeline that you've got in mind. So 35 00:02:01,040 --> 00:02:03,680 Speaker 2: we've seen this show up in shipping and frank bookings. 36 00:02:04,240 --> 00:02:06,240 Speaker 2: Now I'm starting to wonder when we actually see it 37 00:02:06,280 --> 00:02:08,560 Speaker 2: show up in the shelves when people walk into the store, 38 00:02:08,720 --> 00:02:10,160 Speaker 2: what are they going to notice a difference. 39 00:02:11,480 --> 00:02:13,520 Speaker 3: I think you're going to really start seeing it towards 40 00:02:13,560 --> 00:02:17,200 Speaker 3: the end of the summer, so most retailers, most stores 41 00:02:17,240 --> 00:02:21,560 Speaker 3: stockpiled inventory. Again, it was highlighted by the president that 42 00:02:21,600 --> 00:02:25,120 Speaker 3: he was planning on putting tariffs on so it's not 43 00:02:25,240 --> 00:02:28,240 Speaker 3: surprising that most stores tried to stock up on anything 44 00:02:28,760 --> 00:02:32,799 Speaker 3: that was produced internationally that might be tariffed, so they 45 00:02:32,840 --> 00:02:37,399 Speaker 3: have some inventories to go through. It takes a while 46 00:02:37,480 --> 00:02:41,440 Speaker 3: to ship goods from around the world. So the combination 47 00:02:41,880 --> 00:02:46,440 Speaker 3: of lags getting into the economy and the fact that 48 00:02:46,480 --> 00:02:49,360 Speaker 3: there were some inventories that are probably going to shelter 49 00:02:49,480 --> 00:02:52,520 Speaker 3: some of the blow. I would expect the bulk of 50 00:02:52,600 --> 00:02:55,880 Speaker 3: the challenge to start being in towards middle to end 51 00:02:55,919 --> 00:02:56,840 Speaker 3: of the summer. 52 00:02:56,800 --> 00:02:59,480 Speaker 1: Given the lag in time before we actually see the 53 00:02:59,520 --> 00:03:01,280 Speaker 1: ramifications and the hard data. 54 00:03:01,480 --> 00:03:01,919 Speaker 2: How do you. 55 00:03:01,919 --> 00:03:04,720 Speaker 1: Understand the soft data that some people say is incredibly 56 00:03:04,720 --> 00:03:07,640 Speaker 1: and increasingly noisy, and other people say is a prediction 57 00:03:07,720 --> 00:03:08,440 Speaker 1: of what's to come. 58 00:03:10,360 --> 00:03:16,079 Speaker 3: So things like some of the consumer surveys have shown 59 00:03:16,880 --> 00:03:20,640 Speaker 3: very dramatic change. I would say that's noisy numbers, but 60 00:03:20,720 --> 00:03:24,720 Speaker 3: it doesn't mean that it's data that you should completely ignore. 61 00:03:25,240 --> 00:03:28,280 Speaker 3: So I think consumers are very concerned about what the 62 00:03:28,320 --> 00:03:31,720 Speaker 3: price effects are going to be and are starting to 63 00:03:31,760 --> 00:03:35,280 Speaker 3: worry about how much they're going to be affected. I 64 00:03:35,280 --> 00:03:39,000 Speaker 3: think a lot of people are also concerned about rising unemployment, 65 00:03:39,120 --> 00:03:43,240 Speaker 3: and the ADP report, as you highlighted, was relatively weak. 66 00:03:43,680 --> 00:03:47,000 Speaker 3: So I think there's going to be growing concern as 67 00:03:47,040 --> 00:03:50,680 Speaker 3: we get into the summer that we are likely to 68 00:03:50,720 --> 00:03:53,240 Speaker 3: see a recession. A lot of economists are beginning to 69 00:03:53,280 --> 00:03:56,680 Speaker 3: predict that, and I think there is a chance, unless 70 00:03:57,400 --> 00:04:00,920 Speaker 3: the administration pulls back on its tariff polls, that we 71 00:04:00,960 --> 00:04:05,440 Speaker 3: will see some pretty slow growth and continued problems in 72 00:04:05,480 --> 00:04:07,480 Speaker 3: the hard data as we get into the summer. 73 00:04:07,680 --> 00:04:10,080 Speaker 1: We're in the quiet period for the Federal Reserve members 74 00:04:10,080 --> 00:04:12,640 Speaker 1: ahead of the FED meeting next week. There has been 75 00:04:12,800 --> 00:04:15,240 Speaker 1: a lot of communication about just what they see and 76 00:04:15,280 --> 00:04:17,839 Speaker 1: how they perceive the potential risks going forward of both 77 00:04:17,880 --> 00:04:22,479 Speaker 1: inflation or weaker growth or disinflation among some. Do you 78 00:04:22,520 --> 00:04:24,680 Speaker 1: think that at a time like this there should be 79 00:04:24,680 --> 00:04:28,360 Speaker 1: more communication or less communication from the Fed members? 80 00:04:29,640 --> 00:04:33,120 Speaker 3: Well, what you need is clear communication, and I think 81 00:04:33,160 --> 00:04:36,880 Speaker 3: it's very difficult at this time to be particularly clear. 82 00:04:37,560 --> 00:04:39,240 Speaker 3: First of all, we don't know if some of the 83 00:04:39,240 --> 00:04:42,440 Speaker 3: policies are going to be reversed. It is possible that 84 00:04:42,560 --> 00:04:45,560 Speaker 3: negotiations go well with some of the foreign trading partners 85 00:04:45,960 --> 00:04:50,200 Speaker 3: and agreements are made quickly. Now most trade agreements take 86 00:04:50,320 --> 00:04:54,159 Speaker 3: years to actually negotiate, so my guess is it's going 87 00:04:54,200 --> 00:04:56,040 Speaker 3: to be more of a letter of intent than it's 88 00:04:56,080 --> 00:04:59,520 Speaker 3: going to be an actual agreement. But nonetheless, there's a 89 00:04:59,520 --> 00:05:02,560 Speaker 3: lot of un certainty about how long this policy sticks, 90 00:05:03,080 --> 00:05:05,799 Speaker 3: and then there's the question of how it starts affecting 91 00:05:06,600 --> 00:05:11,719 Speaker 3: individual behavior. These tariffs are much much larger than anything 92 00:05:11,760 --> 00:05:15,679 Speaker 3: we've seen since the Great Depression, so our statistical models 93 00:05:15,720 --> 00:05:18,320 Speaker 3: don't have this kind of foreign shock in the data, 94 00:05:18,839 --> 00:05:21,120 Speaker 3: so I think they're going to end. The other issue 95 00:05:21,200 --> 00:05:25,360 Speaker 3: is what you highlighted in the opening, which was it's 96 00:05:25,360 --> 00:05:28,920 Speaker 3: a problem both for unemployment and inflation, and that makes 97 00:05:28,920 --> 00:05:32,160 Speaker 3: it more difficult for the FED. The FED is going 98 00:05:32,200 --> 00:05:35,560 Speaker 3: to be concerned that the inflation numbers are already up 99 00:05:35,600 --> 00:05:38,440 Speaker 3: and it's before the full impact of the tariffs, and 100 00:05:38,520 --> 00:05:41,240 Speaker 3: if we start seeing inflation rates at three and a 101 00:05:41,320 --> 00:05:44,800 Speaker 3: half or four percent, which given depending on where the 102 00:05:44,880 --> 00:05:47,719 Speaker 3: tariffs end up, at least the reported data over the 103 00:05:47,720 --> 00:05:50,480 Speaker 3: course of this year could get that high, that's going 104 00:05:50,560 --> 00:05:53,479 Speaker 3: to make it difficult for the FED to be reacting 105 00:05:53,520 --> 00:05:58,720 Speaker 3: preemptively to any concerns they have about growing recession concerns. 106 00:05:59,080 --> 00:06:01,479 Speaker 3: So it's a very position for the FED to be 107 00:06:01,560 --> 00:06:04,599 Speaker 3: in and I think they're going to move relatively slowly 108 00:06:04,760 --> 00:06:08,200 Speaker 3: until it's apparent exactly what the inflation employment shocks are. 109 00:06:08,640 --> 00:06:11,680 Speaker 2: Eric, before you go, just one final question. The President 110 00:06:11,760 --> 00:06:14,800 Speaker 2: went after the FED share again just yesterday. Does that 111 00:06:14,839 --> 00:06:17,719 Speaker 2: complicate life for the FMC in any way, shape or 112 00:06:17,760 --> 00:06:19,560 Speaker 2: form next week and beyond. 113 00:06:21,320 --> 00:06:23,760 Speaker 3: I don't think it really complicates the FMC. They're going 114 00:06:23,760 --> 00:06:26,320 Speaker 3: to do what they think is right. But what it 115 00:06:26,360 --> 00:06:30,240 Speaker 3: does complicate is if people are worried that the independence 116 00:06:30,240 --> 00:06:32,719 Speaker 3: of the FED is undermined, it's going to be much 117 00:06:32,760 --> 00:06:36,200 Speaker 3: more difficult to finance our deficit. The relationship that you 118 00:06:36,240 --> 00:06:39,600 Speaker 3: were talking about between the stock market and the bond 119 00:06:39,680 --> 00:06:43,480 Speaker 3: market probably will be less correlated than in the past, 120 00:06:44,000 --> 00:06:46,400 Speaker 3: and if we're not careful, we'll lose the safe haven 121 00:06:47,600 --> 00:06:51,440 Speaker 3: behavior that we normally expect when an economy slows down. 122 00:06:51,839 --> 00:06:54,080 Speaker 3: So it's going to limit the fiscal authority as well 123 00:06:54,080 --> 00:06:55,360 Speaker 3: as the monetary authority. 124 00:06:55,800 --> 00:06:58,560 Speaker 2: Eric, appreciate your mind as always and your thoughts at 125 00:06:58,600 --> 00:07:00,480 Speaker 2: Rosenngrant the form of Boston and President