Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: So here's the licest this morning, All eyes on tomorrow's
Speaker 2: CPI print, the first major day to release in weeks,
Speaker 2: expected to show inflationary precious mounting on the economy. The
Speaker 2: former Boston Fed president Eric Rosenngrant has seen it all.
Speaker 2: He joins us now for more. Eric, welcome back to
Speaker 2: the program sir, What are you anticipating to see? What
Speaker 2: do you expect to see tomorrow morning at a thirty
Speaker 2: easton time?
Speaker 1: Expecting to see that both the CPI and the core
Speaker 1: CPI are at three point one percent. So for the
Speaker 1: overall CPI it was at two point nine percent before.
Speaker 1: That's a bit of an increase. It partly reflects some
Speaker 1: of the pressures coming from tariffs continuing to flow through
Speaker 1: so goods like apparel, furniture, sporting goods. But it's also
Speaker 1: that we're seeing food prices go up in a variety
Speaker 1: of areas, and I think that indicates that we're not
Speaker 1: getting much progress on inflation. That this report actually is
Speaker 1: going to be a continuation of numbers that are at
Speaker 1: three percent or higher rather than moving down towards two percent.
Speaker 1: So that is a challenge for the FED as it
Speaker 1: tries to weigh how much emphasis to put on inflation
Speaker 1: and how much emphasis to put on what's happening in
Speaker 1: the labor market.
Speaker 2: Well, Eric, let's stay on that theme. Are the sources
Speaker 2: of inflation that this Feder reserve can ignore?
Speaker 1: I don't think it should ignore the labor market, while
Speaker 1: it has been softer, is still fairly close to the
Speaker 1: Fed's estimate of full employment. And in some of the areas,
Speaker 1: both in food prices, we've seen cost of electricity going up.
Speaker 1: Some of those trends I think are something we have
Speaker 1: to keep an eye on. And while there have been
Speaker 1: some negative pressures, for example, shelters come in a little
Speaker 1: bit better, natural gas is likely to come in a
Speaker 1: little bit better. I think the overall pack. I mean,
Speaker 1: we've been above the two percent inflation target for over
Speaker 1: four years, so at some point the FED has to
Speaker 1: start seeing some improvement inflation. So I would not be
Speaker 1: somebody who would view this as because it's partly coming
Speaker 1: from tariffs, that it should be ignored.
Speaker 3: Eric, is a lot of this inflation policy induced?
Speaker 1: Well, I think it is partly policy induced. It's certainly
Speaker 1: fiscal policy induced. So tariffs definitely have an impact on
Speaker 1: what the reported prices are going to be. I would
Speaker 1: also say that the immigration policy is a policy that
Speaker 1: probably means that some of the food prices have gone
Speaker 1: up as labor costs have gone up for people that
Speaker 1: are trying to harvest crops, and fruits and vegetables have
Speaker 1: been an area in particular where we've seen rising prices.
Speaker 1: In terms of monetary policy, I think the question is
Speaker 1: how much of the pressures that we're seeing have been accommodate.
Speaker 1: So the FED thinks it's restrictive, But if you think
Speaker 1: that the economy is more productive and that AI may
Speaker 1: contribute to that productivity, then it's a little unclear that
Speaker 1: we should be going back to the same interest rate
Speaker 1: that we were at prior to the pandemic. So the
Speaker 1: summary of economic projections that the FED puts out is
Speaker 1: assuming that we'll see something FED funds rate in the
Speaker 1: long run closer to three percent. So that would indicate
Speaker 1: a lot more room. But the fact that we've seen
Speaker 1: so little progress on inflation for the last six months
Speaker 1: indicates that you shouldn't be so confident that you know
Speaker 1: exactly what the real interest rate ought to be.
Speaker 3: Well, not only that, the fact of the matter is
Speaker 3: the FED will be sitting down and they won't have
Speaker 3: the labor market report. They're just going to have this
Speaker 3: inflation report. Do you think it's a mistake if the
Speaker 3: Fed cuts interest rates next week?
Speaker 1: I think that given the softness and labor market, I
Speaker 1: can understand a twenty five base point cut. I would
Speaker 1: highlight that while we're getting the CPI report, a lot
Speaker 1: of government workers left their jobs at the end of September,
Speaker 1: and a lot of the source data may not be available,
Speaker 1: So this CPI report probably is going to be using
Speaker 1: more estimated results than normal. It will be interesting if
Speaker 1: the report highlights that this data may not be as reliable,
Speaker 1: which means it could be noisier. And if it's noisier,
Speaker 1: it could be a surprise on the upside or the downside.
Speaker 1: But it just says, as we continue to have pressures
Speaker 1: on statistical organizations having enough people to gather the data,
Speaker 1: that this data may become noisier and harder to rely on.
Speaker 2: Eric forgive the snak, but how reliable was the data
Speaker 2: when we had it?
Speaker 1: Is it? Sorry?
Speaker 2: How reliable was the data when we had it?
Speaker 1: I think the CPI report was a pretty good report.
Speaker 1: So I mean they had significant amount of surveys across
Speaker 1: the country. They have had to cut back over time
Speaker 1: on the amount of survey work that they do. They've
Speaker 1: closed some offices. So I think that over the last
Speaker 1: few years it has deteriorated a little bit. But I
Speaker 1: think if we continue to be cutting back on statistical agencies,
Speaker 1: it'll get more unreliable as we go forward.
Speaker 2: Eric here Jent, thanks for being generous with your time
Speaker 2: this morning. We appreciate it. The former Boston Fed President
Speaker 2: Eric Rosengren