Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's get to our next guests. They former Boston FED
Speaker 2: president Eric Rosenngrant joined US now for more. Eric, welcome
Speaker 2: back to the program sir. There's the data abs and
Speaker 2: payrolls on Friday. How would you approach an FMC meeting
Speaker 2: like the one week get next week?
Speaker 3: Well, first, as Mike highlighted, it's a pretty noisy number.
Speaker 3: It's partly noisy because a lot of behavior changed to
Speaker 3: reflect the fact that the tariffs were telegraphed. So people
Speaker 3: didn't know the extent of the tariffs. They didn't know
Speaker 3: exactly the distribution around countries, but they didn't know that
Speaker 3: tariffs were coming, and there were certain sectors that you
Speaker 3: would have expected to be tariffed. As a result, many
Speaker 3: people and many firms stockpiled ahead, tried to get ahead
Speaker 3: of the tariffs, and that shows up in imports, that
Speaker 3: shows up in inventories, which is exactly what you're seeing
Speaker 3: in the data. So what it does reflect is enough
Speaker 3: concern that many people and many organizations try to front
Speaker 3: run the tariffs. Now, in terms of going forward, this
Speaker 3: doesn't include any of the information from the so called
Speaker 3: Liberation Day, so people didn't know during the first quarter
Speaker 3: exactly what the tariff situation was going to be, and
Speaker 3: I think most people were surprised by how significant the
Speaker 3: tariffs were. So I think what we're seeing now is
Speaker 3: the positioning going into Liberation Day, and we're going to
Speaker 3: still need some additional data after the beginning of April
Speaker 3: to get a better sense of how much weak are
Speaker 3: the economy is going to be. But I would say
Speaker 3: the high frequency data that are coming in are highlighting
Speaker 3: that the Chinese tariffs in particular are basically acting like
Speaker 3: an embargo, and that means that it's very likely that
Speaker 3: they're going to be much higher prices in some shortages
Speaker 3: of goods that are primarily imported from China.
Speaker 2: Eric, what's the timeline that you've got in mind. So
Speaker 2: we've seen this show up in shipping and frank bookings.
Speaker 2: Now I'm starting to wonder when we actually see it
Speaker 2: show up in the shelves when people walk into the store,
Speaker 2: what are they going to notice a difference.
Speaker 3: I think you're going to really start seeing it towards
Speaker 3: the end of the summer, so most retailers, most stores
Speaker 3: stockpiled inventory. Again, it was highlighted by the president that
Speaker 3: he was planning on putting tariffs on so it's not
Speaker 3: surprising that most stores tried to stock up on anything
Speaker 3: that was produced internationally that might be tariffed, so they
Speaker 3: have some inventories to go through. It takes a while
Speaker 3: to ship goods from around the world. So the combination
Speaker 3: of lags getting into the economy and the fact that
Speaker 3: there were some inventories that are probably going to shelter
Speaker 3: some of the blow. I would expect the bulk of
Speaker 3: the challenge to start being in towards middle to end
Speaker 3: of the summer.
Speaker 1: Given the lag in time before we actually see the
Speaker 1: ramifications and the hard data.
Speaker 2: How do you.
Speaker 1: Understand the soft data that some people say is incredibly
Speaker 1: and increasingly noisy, and other people say is a prediction
Speaker 1: of what's to come.
Speaker 3: So things like some of the consumer surveys have shown
Speaker 3: very dramatic change. I would say that's noisy numbers, but
Speaker 3: it doesn't mean that it's data that you should completely ignore.
Speaker 3: So I think consumers are very concerned about what the
Speaker 3: price effects are going to be and are starting to
Speaker 3: worry about how much they're going to be affected. I
Speaker 3: think a lot of people are also concerned about rising unemployment,
Speaker 3: and the ADP report, as you highlighted, was relatively weak.
Speaker 3: So I think there's going to be growing concern as
Speaker 3: we get into the summer that we are likely to
Speaker 3: see a recession. A lot of economists are beginning to
Speaker 3: predict that, and I think there is a chance, unless
Speaker 3: the administration pulls back on its tariff polls, that we
Speaker 3: will see some pretty slow growth and continued problems in
Speaker 3: the hard data as we get into the summer.
Speaker 1: We're in the quiet period for the Federal Reserve members
Speaker 1: ahead of the FED meeting next week. There has been
Speaker 1: a lot of communication about just what they see and
Speaker 1: how they perceive the potential risks going forward of both
Speaker 1: inflation or weaker growth or disinflation among some. Do you
Speaker 1: think that at a time like this there should be
Speaker 1: more communication or less communication from the Fed members?
Speaker 3: Well, what you need is clear communication, and I think
Speaker 3: it's very difficult at this time to be particularly clear.
Speaker 3: First of all, we don't know if some of the
Speaker 3: policies are going to be reversed. It is possible that
Speaker 3: negotiations go well with some of the foreign trading partners
Speaker 3: and agreements are made quickly. Now most trade agreements take
Speaker 3: years to actually negotiate, so my guess is it's going
Speaker 3: to be more of a letter of intent than it's
Speaker 3: going to be an actual agreement. But nonetheless, there's a
Speaker 3: lot of un certainty about how long this policy sticks,
Speaker 3: and then there's the question of how it starts affecting
Speaker 3: individual behavior. These tariffs are much much larger than anything
Speaker 3: we've seen since the Great Depression, so our statistical models
Speaker 3: don't have this kind of foreign shock in the data,
Speaker 3: so I think they're going to end. The other issue
Speaker 3: is what you highlighted in the opening, which was it's
Speaker 3: a problem both for unemployment and inflation, and that makes
Speaker 3: it more difficult for the FED. The FED is going
Speaker 3: to be concerned that the inflation numbers are already up
Speaker 3: and it's before the full impact of the tariffs, and
Speaker 3: if we start seeing inflation rates at three and a
Speaker 3: half or four percent, which given depending on where the
Speaker 3: tariffs end up, at least the reported data over the
Speaker 3: course of this year could get that high, that's going
Speaker 3: to make it difficult for the FED to be reacting
Speaker 3: preemptively to any concerns they have about growing recession concerns.
Speaker 3: So it's a very position for the FED to be
Speaker 3: in and I think they're going to move relatively slowly
Speaker 3: until it's apparent exactly what the inflation employment shocks are.
Speaker 2: Eric, before you go, just one final question. The President
Speaker 2: went after the FED share again just yesterday. Does that
Speaker 2: complicate life for the FMC in any way, shape or
Speaker 2: form next week and beyond.
Speaker 3: I don't think it really complicates the FMC. They're going
Speaker 3: to do what they think is right. But what it
Speaker 3: does complicate is if people are worried that the independence
Speaker 3: of the FED is undermined, it's going to be much
Speaker 3: more difficult to finance our deficit. The relationship that you
Speaker 3: were talking about between the stock market and the bond
Speaker 3: market probably will be less correlated than in the past,
Speaker 3: and if we're not careful, we'll lose the safe haven
Speaker 3: behavior that we normally expect when an economy slows down.
Speaker 3: So it's going to limit the fiscal authority as well
Speaker 3: as the monetary authority.
Speaker 2: Eric, appreciate your mind as always and your thoughts at
Speaker 2: Rosenngrant the form of Boston and President