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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Joining us now if the former Boston Fed President Eric Rosengrant,

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Speaker 2: welcome back to the program Sir, some healthy debate at

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Speaker 2: the feder Reserve. Let's call it what it is. It

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Speaker 2: is healthy. Do you think September is too early to

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Speaker 2: settle the debate?

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Speaker 1: I think it depends on how the data comes in.

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Speaker 1: We have two CPI reports, one PCE report, and one

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Speaker 1: employment report. Data can be pretty noisy, so I think

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Speaker 1: we need to see what things look like as we

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Speaker 1: get into September. But I agree that if the CPI

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Speaker 1: and PCE are reasonably well restrained and the labor market

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Speaker 1: looks sweat, then it would be appropriate to ease rates. However,

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Speaker 1: it's also quite possible that we'll see a slowly increasing

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Speaker 1: inflation rate. I'm expecting the CPI will probably be the

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Speaker 1: core cpi'll be above three percent when it comes out tomorrow,

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Speaker 1: and if we start seeing numbers that look higher than

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Speaker 1: the markets expecting, sentiment can change pretty quickly. So I

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Speaker 1: think it's a little too soon to call September. I

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Speaker 1: think the Fed was acting appropriately when I wanted to

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Speaker 1: wait and see, because right now, while the payroll employment

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Speaker 1: was weak. The unemployment rate was four point two percent,

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Speaker 1: and the labor market has had a labor supply shock,

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Speaker 1: so you probably want to focus a little bit more

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Speaker 1: on the unemployment rate than the payroll employment numbers.

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Speaker 2: Eric, As you look at the dual mandate at the moment,

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Speaker 2: and this really speaks to the divide of the Federal Reserve.

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Speaker 2: There are some individuals who want to focus on the

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Speaker 2: employment side of the mandate, others who still want to

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Speaker 2: focus on the price stability side of the mandate. Can

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Speaker 2: you share with us your experience. Did you prioritize one

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Speaker 2: side over the other? Are they created equally.

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Speaker 1: So everybody can vote and weigh I mean, it's you're

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Speaker 1: not given the waiting function, so each person can kind

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Speaker 1: of choose for themselves what they think is most important

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Speaker 1: at the time. But the framework document actually talks about

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Speaker 1: what you should do when both elements of the mandate

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Speaker 1: are not where you want it, And in that document

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Speaker 1: it argues that you should look at how far away

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Speaker 1: you are from where you want to be and how

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Speaker 1: long it'll take to get there. So on inflation, if

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Speaker 1: you look at the core PCE, we're at two point

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Speaker 1: eight percent, and most people think it's going to take

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Speaker 1: quite some time for us to get back to two percent.

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Speaker 1: If you look at the unemployment rate, we're right at

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Speaker 1: four point two percent. So despite the weak labor supply

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Speaker 1: that's been happening, the labor market doesn't look to be

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Speaker 1: in that much trouble. You don't see initial claims rising rapidly.

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Speaker 1: So while I know a number of participants at the

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Speaker 1: FMC are talking about concern about the employment mandate, it

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Speaker 1: actually is exactly where they forecast they want it to be,

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Speaker 1: which is at full employment.

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Speaker 3: Basically, what you outline there says that the Fed shouldn't

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Speaker 3: be cutting just yet. So is there a bias to

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Speaker 3: a weakening labor market?

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Speaker 1: So it depends on a forecast, and I would say

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Speaker 1: private sector economists do not see a rapidly rising unemployment

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Speaker 1: rate and do not see an elevated risk of seeing

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Speaker 1: a recession. So I would think the rhetoric around the

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Speaker 1: labor market would be more consistent if the private sector

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Speaker 1: was seeing more evidence in the data that the unemployment

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Speaker 1: rate looked like it was going to rise, that initial

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Speaker 1: claims was going to rise. So I think at this case,

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Speaker 1: at this time, it's a little bit odd to overweight

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Speaker 1: the employment part of the dual mandate?

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Speaker 2: Eric, can we just sit on the data and I

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Speaker 2: want to avoid the politics. Don't worry about that, not

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Speaker 2: going to include you in any of that whatsoever. We're

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Speaker 2: always dependent on the data, and there's been a question

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Speaker 2: for a long long time about how dependable the data

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Speaker 2: actually is. Particularly the labor market data prone to very

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Speaker 2: large revisions. We saw that last year. We've seen it

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Speaker 2: many times in the past as well. Eric, How did

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Speaker 2: you manage that situation? Were you less sensitive to incoming

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Speaker 2: monthly reads and knowing that at some point future they

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Speaker 2: would be revised, how did you approach it?

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Speaker 1: So if you focus on a forecast month to month,

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Speaker 1: doesn't matter nearly as much as where you expect things

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Speaker 1: to go over time. And as you point out, the

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Speaker 1: labor market data, particularly the payroll numbers, can be pretty jumpy.

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Speaker 1: And the reason for that is not because anybody's manipulating it.

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Speaker 1: It's because they do a survey and if people don't

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Speaker 1: fill out their survey forms on time, then in the

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Speaker 1: revision they pick up the additional surveys and so depending

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Speaker 1: on what the response rate is, and the response rate

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Speaker 1: has been going down on many US government surveys, it

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Speaker 1: becomes less accurate, and the revisions can be larger as

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Speaker 1: they get additional data. So you never should put too

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Speaker 1: much weight on any one data point. You're really looking

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Speaker 1: for a trend you're not actually looking for. While Wall

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Speaker 1: Street focuses on beating expectations and having a number comparing

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Speaker 1: the current number to what they expected, bankers should really

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Speaker 1: be worried more about long term trends. So long term

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Speaker 1: trends don't get affected as much by a single data point,

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Speaker 1: so you should smooth through most of that data, and

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Speaker 1: that's what most forecasts end up doing.

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Speaker 3: Do you think there's concern though, that now the US

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Speaker 3: data is no longer considered the gold standard given the

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Speaker 3: fact that the President ousted the commissioner of the BLS.

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Speaker 1: Well, it depends on who he gets who replaces at

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Speaker 1: the BLS, but it would be very disturbing if you

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Speaker 1: didn't have reliance on the data and the US not

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Speaker 1: just the BLS data, but the GDP data, the inflation data.

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Speaker 1: All that data is critical to making good policy choices.

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Speaker 1: And if that data is manipulated in some way so

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Speaker 1: that you can't rely on it, it becomes very problematic

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Speaker 1: for policy, and while the initial changes are probably not

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Speaker 1: going to be that noticeable, over time they can create havoc,

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Speaker 1: and I think you see examples of that, and the

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Speaker 1: Wall Street Journal did an article on what happened in

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Speaker 1: Argentina when they started manipulating the data. China has been

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Speaker 1: famous for dropping series that didn't work in the way

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Speaker 1: they were hoping. So, for example, youth unemployment is not

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Speaker 1: reported anymore on a consistent basis, but you see young

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Speaker 1: people coming to the United States because they can't get

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Speaker 1: jobs in China. So you can conceal to some extent

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Speaker 1: data and for months to month you can get slightly

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Speaker 1: better numbers. But over time, if you're manipulating the data

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Speaker 1: becomes obvious to the public.

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Speaker 3: Eric the President's nomination to fill Governor Coogler seat Stephen Myron,

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Speaker 3: is an individual that is already working with him as

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Speaker 3: one of his economists the head of the CEA less

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Speaker 3: than a year ago, Myron was against cuts at the FED.

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Speaker 3: Does he look purely political now, potentially to his new

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Speaker 3: colleagues at the FOMC.

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Speaker 1: I think there is a consistency problem. He has traditionally

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Speaker 1: been somebody very concerned about the inflation part of the mandate,

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Speaker 1: and so his newfound interest in the labor market and

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Speaker 1: the need to lower interest rates looks somewhat out of

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Speaker 1: character from what he was concerned about. Over time, he's

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Speaker 1: written about being concerned that there's too much politics of

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Speaker 1: the FED. He obviously has been a strong proponent of

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Speaker 1: this administration's policies and seems to be a proponent of

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Speaker 1: lowering interest rates, which has been advocated by the administration.

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Speaker 1: So what you're looking for is an independent FED. He

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Speaker 1: probably is not the perfect choice to ratify an independent FED.

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Speaker 2: Eric, I appreciate your opinion. Thank you, sir. The former

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Speaker 2: paston FED President there Eric Rosengrant