WEBVTT - Eric Rosengren Talks Fed

0:00:02.520 --> 0:00:09.160
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Eric Rosngrin joins us

0:00:09.200 --> 0:00:13.840
<v Speaker 1>right now, former Federal Reserve President of Boston, and Eric,

0:00:13.840 --> 0:00:16.080
<v Speaker 1>I do want to start off with the general idea

0:00:16.400 --> 0:00:19.720
<v Speaker 1>of what the FED can do next, given the economic

0:00:19.800 --> 0:00:22.720
<v Speaker 1>data that we've seen that seems to suggests a labor

0:00:22.720 --> 0:00:26.720
<v Speaker 1>market influx but still stable, and inflation well still a

0:00:26.800 --> 0:00:30.000
<v Speaker 1>question mark, but not necessarily hot as it was just

0:00:30.040 --> 0:00:30.840
<v Speaker 1>a year or so ago.

0:00:33.080 --> 0:00:36.680
<v Speaker 2>Yeah, so I agree with you that the conditions for

0:00:37.040 --> 0:00:41.319
<v Speaker 2>easing right now are not nearly as strong as they

0:00:41.400 --> 0:00:46.080
<v Speaker 2>might have been a quarter ago. The CPI at two

0:00:46.159 --> 0:00:52.520
<v Speaker 2>point seven percent is substantially above the two percent inflation target.

0:00:52.800 --> 0:00:56.600
<v Speaker 2>It was two point seven last month as well, and

0:00:57.480 --> 0:00:59.920
<v Speaker 2>if you look at the PCE measure of inflation is

0:01:00.080 --> 0:01:04.720
<v Speaker 2>been gradually rising. So the result is that the inflation

0:01:04.880 --> 0:01:08.520
<v Speaker 2>news has not been such that you can have a

0:01:08.560 --> 0:01:10.640
<v Speaker 2>great deal of confidence if the Fed's going to get

0:01:10.680 --> 0:01:13.880
<v Speaker 2>back to target, particularly as you note they've missed their

0:01:13.880 --> 0:01:18.119
<v Speaker 2>two percent target for almost five years. On the labor

0:01:18.200 --> 0:01:22.160
<v Speaker 2>market side, there were only fifty thousand jobs created, but

0:01:22.240 --> 0:01:24.640
<v Speaker 2>that's the average that we've seen over the last year,

0:01:25.280 --> 0:01:28.480
<v Speaker 2>and part of that is because of immigration, with much

0:01:28.520 --> 0:01:32.000
<v Speaker 2>less immigration, we don't have as much growth in the

0:01:32.040 --> 0:01:34.920
<v Speaker 2>labor force. In fact, labor force has been pretty much flat,

0:01:35.360 --> 0:01:38.600
<v Speaker 2>and so fifty thousand jobs isn't that far out of

0:01:38.640 --> 0:01:41.639
<v Speaker 2>the ordinary given the slow growth in the labor force.

0:01:42.480 --> 0:01:46.000
<v Speaker 2>The unemployment rates at four point four percent, that's very

0:01:46.000 --> 0:01:48.840
<v Speaker 2>close to what the FED thinks it will be in

0:01:48.880 --> 0:01:51.040
<v Speaker 2>the long run. It's a little bit above, but only

0:01:51.080 --> 0:01:53.840
<v Speaker 2>a little bit above. So I think that the Fed

0:01:53.960 --> 0:01:57.040
<v Speaker 2>is well situated to wait and see and see if

0:01:57.040 --> 0:02:01.200
<v Speaker 2>the economy picks up. There is reasonable weave that next

0:02:01.280 --> 0:02:05.200
<v Speaker 2>year GDP will be stronger. Fiscal policy is going to

0:02:05.200 --> 0:02:10.280
<v Speaker 2>be stimulative because we're running large deficits. The Big Beautiful

0:02:10.320 --> 0:02:16.680
<v Speaker 2>Bill included investment credits that encourage investment and also has

0:02:16.760 --> 0:02:21.160
<v Speaker 2>lower taxes for helping consumers out. So I think the

0:02:21.200 --> 0:02:24.880
<v Speaker 2>conditions for reasonable growth next year are there, and so

0:02:25.040 --> 0:02:27.560
<v Speaker 2>as long as that actually pans out, there's really no

0:02:27.680 --> 0:02:30.959
<v Speaker 2>reason for the Fed to change the level of rates.

0:02:31.440 --> 0:02:33.200
<v Speaker 1>There has been sort of a parlor game going on

0:02:33.280 --> 0:02:35.600
<v Speaker 1>right now in financial markets, the idea that one way

0:02:35.680 --> 0:02:38.399
<v Speaker 1>or another we are going to see more accommodative policy

0:02:38.520 --> 0:02:41.240
<v Speaker 1>out of the FED this year, largely because of the

0:02:41.280 --> 0:02:45.600
<v Speaker 1>political factors here, whether it is the formal replacement of J. Powell,

0:02:46.160 --> 0:02:49.440
<v Speaker 1>it is expected departure date later this year in May,

0:02:49.520 --> 0:02:52.440
<v Speaker 1>or maybe potentially sooner than that. But just overall, the

0:02:52.480 --> 0:02:55.239
<v Speaker 1>idea that you have a White House it seems emboldened

0:02:55.560 --> 0:02:58.639
<v Speaker 1>in its desire to continue jaw boning where it thinks

0:02:58.680 --> 0:03:01.799
<v Speaker 1>monetary policies should go. Well, Eric, I know I heard

0:03:01.800 --> 0:03:04.120
<v Speaker 1>from all these former FED members that say, look, you

0:03:04.120 --> 0:03:06.640
<v Speaker 1>go into that room, you focus on the data, not

0:03:06.760 --> 0:03:08.920
<v Speaker 1>the politics going on down the street out of the

0:03:08.919 --> 0:03:11.440
<v Speaker 1>White House. This just feels a little bit different here

0:03:11.480 --> 0:03:12.639
<v Speaker 1>in twenty twenty six, though.

0:03:14.440 --> 0:03:17.560
<v Speaker 2>Well, I agree with the commentators that have said that

0:03:17.600 --> 0:03:20.480
<v Speaker 2>the FED tends to focus on the data, but it

0:03:20.480 --> 0:03:24.400
<v Speaker 2>does matter who's in positions to make the decisions. And

0:03:24.440 --> 0:03:29.040
<v Speaker 2>so J. Powell's term ends in May, and assuming that

0:03:29.120 --> 0:03:32.920
<v Speaker 2>the administration comes up with someone to replace Jay and

0:03:32.960 --> 0:03:37.280
<v Speaker 2>it gets sent that person gets Senate confirmation, the Administration's

0:03:37.320 --> 0:03:40.080
<v Speaker 2>made clear that they're not going to point somebody who

0:03:40.160 --> 0:03:45.520
<v Speaker 2>doesn't believe that interest rates should drop quite significantly, which

0:03:45.520 --> 0:03:49.000
<v Speaker 2>has been clearly expressed by the President. So I think

0:03:49.120 --> 0:03:53.120
<v Speaker 2>most of the optimism for interest rates coming down assumes

0:03:53.200 --> 0:03:55.680
<v Speaker 2>that it's going to happen in the second half the year,

0:03:56.560 --> 0:04:00.920
<v Speaker 2>when there's a new FED share in place, Well, it's

0:04:00.960 --> 0:04:04.520
<v Speaker 2>still a committee decision. Whoever gets picked has to have

0:04:04.640 --> 0:04:08.080
<v Speaker 2>enough credibility and has to have strong enough arguments that

0:04:08.120 --> 0:04:12.360
<v Speaker 2>he convinces a majority of the FOMC to vote their way.

0:04:12.920 --> 0:04:15.320
<v Speaker 2>So it's still not a slam dunk. Even with the

0:04:15.400 --> 0:04:20.880
<v Speaker 2>new FED share that rates actually declined, particularly if the

0:04:20.960 --> 0:04:27.520
<v Speaker 2>administration jaw boning and potential legal challenges raise concerns about

0:04:27.600 --> 0:04:30.839
<v Speaker 2>federal reserve and independence and make some of the voting

0:04:30.880 --> 0:04:35.159
<v Speaker 2>members want to be sure that the economic conditions justify

0:04:35.200 --> 0:04:35.560
<v Speaker 2>a move.

0:04:35.880 --> 0:04:40.560
<v Speaker 1>Well, given the DOJ subpoenas into Pale ostensibly into Pal's

0:04:40.560 --> 0:04:44.280
<v Speaker 1>handling other renovations of the FED building, given the Supreme

0:04:44.400 --> 0:04:48.719
<v Speaker 1>or Court argument scheduled to start next week involving Lisa Cook,

0:04:48.800 --> 0:04:52.120
<v Speaker 1>and the power of the President to actually remove a

0:04:52.200 --> 0:04:56.119
<v Speaker 1>FED governor, seemingly at will I am curious Eric about

0:04:56.160 --> 0:04:59.360
<v Speaker 1>this idea of fedder independence and whether we should really

0:04:59.360 --> 0:05:01.440
<v Speaker 1>start looking at this is the beginning of the end,

0:05:01.760 --> 0:05:05.880
<v Speaker 1>particularly given the comments out of the three former FED

0:05:05.960 --> 0:05:09.800
<v Speaker 1>chiefs yesterday, their statement that they sign the support today

0:05:09.839 --> 0:05:14.680
<v Speaker 1>that we saw from monetary policy officials overseas, as well

0:05:14.720 --> 0:05:17.839
<v Speaker 1>as executives like JP Morgan CEO Jamie Diamond.

0:05:19.480 --> 0:05:24.680
<v Speaker 2>Yeah, so FED independence is critically important. Normally, losing FED

0:05:28.520 --> 0:05:31.479
<v Speaker 2>is something that happens in third world countries where either

0:05:31.520 --> 0:05:34.160
<v Speaker 2>they're having trouble managing your deficit and want to get

0:05:34.200 --> 0:05:38.160
<v Speaker 2>the interest rates down to make it easier to issue debt,

0:05:39.200 --> 0:05:42.280
<v Speaker 2>or they're trying to get interest rates down because they

0:05:42.360 --> 0:05:45.400
<v Speaker 2>think it will help them get elected in the upcoming election.

0:05:46.400 --> 0:05:50.359
<v Speaker 2>The Federal Reserve was constructed to be pretty independent from

0:05:50.480 --> 0:05:53.360
<v Speaker 2>the rest of government so that this kind of political

0:05:53.400 --> 0:05:57.000
<v Speaker 2>business cycle doesn't actually occur in the United States. So

0:05:57.080 --> 0:06:00.720
<v Speaker 2>to the extent that various actions by the end administration

0:06:01.760 --> 0:06:05.800
<v Speaker 2>undermine the belief that the FED will stay independent, it

0:06:05.880 --> 0:06:08.839
<v Speaker 2>will make harder for the next chair to actually lower

0:06:08.880 --> 0:06:14.120
<v Speaker 2>interest rates convince people that they are truly independent, and

0:06:14.240 --> 0:06:17.240
<v Speaker 2>runs the risk if people start becoming concerned that the

0:06:17.279 --> 0:06:21.400
<v Speaker 2>FED no longer is going to focus on inflation, that

0:06:21.560 --> 0:06:23.920
<v Speaker 2>even if interest rates go down at the short end,

0:06:24.520 --> 0:06:27.159
<v Speaker 2>the long end will go up as people become concerned

0:06:27.160 --> 0:06:30.880
<v Speaker 2>that the policies will generate ongoing inflation higher than what

0:06:30.960 --> 0:06:32.039
<v Speaker 2>we've historically had.

0:06:32.960 --> 0:06:34.880
<v Speaker 1>All Right, Eric, I have to leave. They always appreciate

0:06:34.880 --> 0:06:37.240
<v Speaker 1>getting your comments here. Eric rosen Grand, of course, former

0:06:37.279 --> 0:06:39.880
<v Speaker 1>president of the Federal Reserve Bank of Boston,