WEBVTT - Former Boston Fed President Eric Rosengren Talks Recession

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's get to our next guests. They former Boston FED

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<v Speaker 2>president Eric Rosenngrant joined US now for more. Eric, welcome

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<v Speaker 2>back to the program sir. There's the data abs and

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<v Speaker 2>payrolls on Friday. How would you approach an FMC meeting

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<v Speaker 2>like the one week get next week?

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<v Speaker 3>Well, first, as Mike highlighted, it's a pretty noisy number.

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<v Speaker 3>It's partly noisy because a lot of behavior changed to

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<v Speaker 3>reflect the fact that the tariffs were telegraphed. So people

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<v Speaker 3>didn't know the extent of the tariffs. They didn't know

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<v Speaker 3>exactly the distribution around countries, but they didn't know that

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<v Speaker 3>tariffs were coming, and there were certain sectors that you

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<v Speaker 3>would have expected to be tariffed. As a result, many

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<v Speaker 3>people and many firms stockpiled ahead, tried to get ahead

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<v Speaker 3>of the tariffs, and that shows up in imports, that

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<v Speaker 3>shows up in inventories, which is exactly what you're seeing

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<v Speaker 3>in the data. So what it does reflect is enough

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<v Speaker 3>concern that many people and many organizations try to front

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<v Speaker 3>run the tariffs. Now, in terms of going forward, this

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<v Speaker 3>doesn't include any of the information from the so called

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<v Speaker 3>Liberation Day, so people didn't know during the first quarter

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<v Speaker 3>exactly what the tariff situation was going to be, and

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<v Speaker 3>I think most people were surprised by how significant the

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<v Speaker 3>tariffs were. So I think what we're seeing now is

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<v Speaker 3>the positioning going into Liberation Day, and we're going to

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<v Speaker 3>still need some additional data after the beginning of April

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<v Speaker 3>to get a better sense of how much weak are

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<v Speaker 3>the economy is going to be. But I would say

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<v Speaker 3>the high frequency data that are coming in are highlighting

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<v Speaker 3>that the Chinese tariffs in particular are basically acting like

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<v Speaker 3>an embargo, and that means that it's very likely that

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<v Speaker 3>they're going to be much higher prices in some shortages

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<v Speaker 3>of goods that are primarily imported from China.

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<v Speaker 2>Eric, what's the timeline that you've got in mind. So

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<v Speaker 2>we've seen this show up in shipping and frank bookings.

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<v Speaker 2>Now I'm starting to wonder when we actually see it

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<v Speaker 2>show up in the shelves when people walk into the store,

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<v Speaker 2>what are they going to notice a difference.

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<v Speaker 3>I think you're going to really start seeing it towards

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<v Speaker 3>the end of the summer, so most retailers, most stores

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<v Speaker 3>stockpiled inventory. Again, it was highlighted by the president that

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<v Speaker 3>he was planning on putting tariffs on so it's not

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<v Speaker 3>surprising that most stores tried to stock up on anything

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<v Speaker 3>that was produced internationally that might be tariffed, so they

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<v Speaker 3>have some inventories to go through. It takes a while

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<v Speaker 3>to ship goods from around the world. So the combination

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<v Speaker 3>of lags getting into the economy and the fact that

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<v Speaker 3>there were some inventories that are probably going to shelter

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<v Speaker 3>some of the blow. I would expect the bulk of

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<v Speaker 3>the challenge to start being in towards middle to end

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<v Speaker 3>of the summer.

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<v Speaker 1>Given the lag in time before we actually see the

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<v Speaker 1>ramifications and the hard data.

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<v Speaker 2>How do you.

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<v Speaker 1>Understand the soft data that some people say is incredibly

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<v Speaker 1>and increasingly noisy, and other people say is a prediction

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<v Speaker 1>of what's to come.

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<v Speaker 3>So things like some of the consumer surveys have shown

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<v Speaker 3>very dramatic change. I would say that's noisy numbers, but

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<v Speaker 3>it doesn't mean that it's data that you should completely ignore.

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<v Speaker 3>So I think consumers are very concerned about what the

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<v Speaker 3>price effects are going to be and are starting to

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<v Speaker 3>worry about how much they're going to be affected. I

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<v Speaker 3>think a lot of people are also concerned about rising unemployment,

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<v Speaker 3>and the ADP report, as you highlighted, was relatively weak.

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<v Speaker 3>So I think there's going to be growing concern as

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<v Speaker 3>we get into the summer that we are likely to

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<v Speaker 3>see a recession. A lot of economists are beginning to

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<v Speaker 3>predict that, and I think there is a chance, unless

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<v Speaker 3>the administration pulls back on its tariff polls, that we

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<v Speaker 3>will see some pretty slow growth and continued problems in

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<v Speaker 3>the hard data as we get into the summer.

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<v Speaker 1>We're in the quiet period for the Federal Reserve members

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<v Speaker 1>ahead of the FED meeting next week. There has been

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<v Speaker 1>a lot of communication about just what they see and

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<v Speaker 1>how they perceive the potential risks going forward of both

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<v Speaker 1>inflation or weaker growth or disinflation among some. Do you

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<v Speaker 1>think that at a time like this there should be

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<v Speaker 1>more communication or less communication from the Fed members?

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<v Speaker 3>Well, what you need is clear communication, and I think

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<v Speaker 3>it's very difficult at this time to be particularly clear.

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<v Speaker 3>First of all, we don't know if some of the

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<v Speaker 3>policies are going to be reversed. It is possible that

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<v Speaker 3>negotiations go well with some of the foreign trading partners

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<v Speaker 3>and agreements are made quickly. Now most trade agreements take

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<v Speaker 3>years to actually negotiate, so my guess is it's going

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<v Speaker 3>to be more of a letter of intent than it's

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<v Speaker 3>going to be an actual agreement. But nonetheless, there's a

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<v Speaker 3>lot of un certainty about how long this policy sticks,

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<v Speaker 3>and then there's the question of how it starts affecting

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<v Speaker 3>individual behavior. These tariffs are much much larger than anything

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<v Speaker 3>we've seen since the Great Depression, so our statistical models

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<v Speaker 3>don't have this kind of foreign shock in the data,

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<v Speaker 3>so I think they're going to end. The other issue

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<v Speaker 3>is what you highlighted in the opening, which was it's

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<v Speaker 3>a problem both for unemployment and inflation, and that makes

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<v Speaker 3>it more difficult for the FED. The FED is going

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<v Speaker 3>to be concerned that the inflation numbers are already up

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<v Speaker 3>and it's before the full impact of the tariffs, and

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<v Speaker 3>if we start seeing inflation rates at three and a

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<v Speaker 3>half or four percent, which given depending on where the

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<v Speaker 3>tariffs end up, at least the reported data over the

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<v Speaker 3>course of this year could get that high, that's going

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<v Speaker 3>to make it difficult for the FED to be reacting

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<v Speaker 3>preemptively to any concerns they have about growing recession concerns.

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<v Speaker 3>So it's a very position for the FED to be

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<v Speaker 3>in and I think they're going to move relatively slowly

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<v Speaker 3>until it's apparent exactly what the inflation employment shocks are.

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<v Speaker 2>Eric, before you go, just one final question. The President

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<v Speaker 2>went after the FED share again just yesterday. Does that

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<v Speaker 2>complicate life for the FMC in any way, shape or

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<v Speaker 2>form next week and beyond.

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<v Speaker 3>I don't think it really complicates the FMC. They're going

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<v Speaker 3>to do what they think is right. But what it

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<v Speaker 3>does complicate is if people are worried that the independence

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<v Speaker 3>of the FED is undermined, it's going to be much

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<v Speaker 3>more difficult to finance our deficit. The relationship that you

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<v Speaker 3>were talking about between the stock market and the bond

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<v Speaker 3>market probably will be less correlated than in the past,

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<v Speaker 3>and if we're not careful, we'll lose the safe haven

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<v Speaker 3>behavior that we normally expect when an economy slows down.

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<v Speaker 3>So it's going to limit the fiscal authority as well

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<v Speaker 3>as the monetary authority.

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<v Speaker 2>Eric, appreciate your mind as always and your thoughts at

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<v Speaker 2>Rosenngrant the form of Boston and President