Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Eric Rosngrin joins us
Speaker 1: right now, former Federal Reserve President of Boston, and Eric,
Speaker 1: I do want to start off with the general idea
Speaker 1: of what the FED can do next, given the economic
Speaker 1: data that we've seen that seems to suggests a labor
Speaker 1: market influx but still stable, and inflation well still a
Speaker 1: question mark, but not necessarily hot as it was just
Speaker 1: a year or so ago.
Speaker 2: Yeah, so I agree with you that the conditions for
Speaker 2: easing right now are not nearly as strong as they
Speaker 2: might have been a quarter ago. The CPI at two
Speaker 2: point seven percent is substantially above the two percent inflation target.
Speaker 2: It was two point seven last month as well, and
Speaker 2: if you look at the PCE measure of inflation is
Speaker 2: been gradually rising. So the result is that the inflation
Speaker 2: news has not been such that you can have a
Speaker 2: great deal of confidence if the Fed's going to get
Speaker 2: back to target, particularly as you note they've missed their
Speaker 2: two percent target for almost five years. On the labor
Speaker 2: market side, there were only fifty thousand jobs created, but
Speaker 2: that's the average that we've seen over the last year,
Speaker 2: and part of that is because of immigration, with much
Speaker 2: less immigration, we don't have as much growth in the
Speaker 2: labor force. In fact, labor force has been pretty much flat,
Speaker 2: and so fifty thousand jobs isn't that far out of
Speaker 2: the ordinary given the slow growth in the labor force.
Speaker 2: The unemployment rates at four point four percent, that's very
Speaker 2: close to what the FED thinks it will be in
Speaker 2: the long run. It's a little bit above, but only
Speaker 2: a little bit above. So I think that the Fed
Speaker 2: is well situated to wait and see and see if
Speaker 2: the economy picks up. There is reasonable weave that next
Speaker 2: year GDP will be stronger. Fiscal policy is going to
Speaker 2: be stimulative because we're running large deficits. The Big Beautiful
Speaker 2: Bill included investment credits that encourage investment and also has
Speaker 2: lower taxes for helping consumers out. So I think the
Speaker 2: conditions for reasonable growth next year are there, and so
Speaker 2: as long as that actually pans out, there's really no
Speaker 2: reason for the Fed to change the level of rates.
Speaker 1: There has been sort of a parlor game going on
Speaker 1: right now in financial markets, the idea that one way
Speaker 1: or another we are going to see more accommodative policy
Speaker 1: out of the FED this year, largely because of the
Speaker 1: political factors here, whether it is the formal replacement of J. Powell,
Speaker 1: it is expected departure date later this year in May,
Speaker 1: or maybe potentially sooner than that. But just overall, the
Speaker 1: idea that you have a White House it seems emboldened
Speaker 1: in its desire to continue jaw boning where it thinks
Speaker 1: monetary policies should go. Well, Eric, I know I heard
Speaker 1: from all these former FED members that say, look, you
Speaker 1: go into that room, you focus on the data, not
Speaker 1: the politics going on down the street out of the
Speaker 1: White House. This just feels a little bit different here
Speaker 1: in twenty twenty six, though.
Speaker 2: Well, I agree with the commentators that have said that
Speaker 2: the FED tends to focus on the data, but it
Speaker 2: does matter who's in positions to make the decisions. And
Speaker 2: so J. Powell's term ends in May, and assuming that
Speaker 2: the administration comes up with someone to replace Jay and
Speaker 2: it gets sent that person gets Senate confirmation, the Administration's
Speaker 2: made clear that they're not going to point somebody who
Speaker 2: doesn't believe that interest rates should drop quite significantly, which
Speaker 2: has been clearly expressed by the President. So I think
Speaker 2: most of the optimism for interest rates coming down assumes
Speaker 2: that it's going to happen in the second half the year,
Speaker 2: when there's a new FED share in place, Well, it's
Speaker 2: still a committee decision. Whoever gets picked has to have
Speaker 2: enough credibility and has to have strong enough arguments that
Speaker 2: he convinces a majority of the FOMC to vote their way.
Speaker 2: So it's still not a slam dunk. Even with the
Speaker 2: new FED share that rates actually declined, particularly if the
Speaker 2: administration jaw boning and potential legal challenges raise concerns about
Speaker 2: federal reserve and independence and make some of the voting
Speaker 2: members want to be sure that the economic conditions justify
Speaker 2: a move.
Speaker 1: Well, given the DOJ subpoenas into Pale ostensibly into Pal's
Speaker 1: handling other renovations of the FED building, given the Supreme
Speaker 1: or Court argument scheduled to start next week involving Lisa Cook,
Speaker 1: and the power of the President to actually remove a
Speaker 1: FED governor, seemingly at will I am curious Eric about
Speaker 1: this idea of fedder independence and whether we should really
Speaker 1: start looking at this is the beginning of the end,
Speaker 1: particularly given the comments out of the three former FED
Speaker 1: chiefs yesterday, their statement that they sign the support today
Speaker 1: that we saw from monetary policy officials overseas, as well
Speaker 1: as executives like JP Morgan CEO Jamie Diamond.
Speaker 2: Yeah, so FED independence is critically important. Normally, losing FED
Speaker 2: is something that happens in third world countries where either
Speaker 2: they're having trouble managing your deficit and want to get
Speaker 2: the interest rates down to make it easier to issue debt,
Speaker 2: or they're trying to get interest rates down because they
Speaker 2: think it will help them get elected in the upcoming election.
Speaker 2: The Federal Reserve was constructed to be pretty independent from
Speaker 2: the rest of government so that this kind of political
Speaker 2: business cycle doesn't actually occur in the United States. So
Speaker 2: to the extent that various actions by the end administration
Speaker 2: undermine the belief that the FED will stay independent, it
Speaker 2: will make harder for the next chair to actually lower
Speaker 2: interest rates convince people that they are truly independent, and
Speaker 2: runs the risk if people start becoming concerned that the
Speaker 2: FED no longer is going to focus on inflation, that
Speaker 2: even if interest rates go down at the short end,
Speaker 2: the long end will go up as people become concerned
Speaker 2: that the policies will generate ongoing inflation higher than what
Speaker 2: we've historically had.
Speaker 1: All Right, Eric, I have to leave. They always appreciate
Speaker 1: getting your comments here. Eric rosen Grand, of course, former
Speaker 1: president of the Federal Reserve Bank of Boston,