WEBVTT - Eric Rosengren Talks Fed Cuts, Dual Mandate, Stephen Miran

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

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<v Speaker 2>Joining us now if the former Boston Fed President Eric Rosengrant,

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<v Speaker 2>welcome back to the program Sir, some healthy debate at

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<v Speaker 2>the feder Reserve. Let's call it what it is. It

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<v Speaker 2>is healthy. Do you think September is too early to

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<v Speaker 2>settle the debate?

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<v Speaker 1>I think it depends on how the data comes in.

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<v Speaker 1>We have two CPI reports, one PCE report, and one

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<v Speaker 1>employment report. Data can be pretty noisy, so I think

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<v Speaker 1>we need to see what things look like as we

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<v Speaker 1>get into September. But I agree that if the CPI

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<v Speaker 1>and PCE are reasonably well restrained and the labor market

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<v Speaker 1>looks sweat, then it would be appropriate to ease rates. However,

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<v Speaker 1>it's also quite possible that we'll see a slowly increasing

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<v Speaker 1>inflation rate. I'm expecting the CPI will probably be the

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

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<v Speaker 1>and if we start seeing numbers that look higher than

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<v Speaker 1>the markets expecting, sentiment can change pretty quickly. So I

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<v Speaker 1>think it's a little too soon to call September. I

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<v Speaker 1>think the Fed was acting appropriately when I wanted to

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<v Speaker 1>wait and see, because right now, while the payroll employment

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<v Speaker 1>was weak. The unemployment rate was four point two percent,

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<v Speaker 1>and the labor market has had a labor supply shock,

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<v Speaker 1>so you probably want to focus a little bit more

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<v Speaker 1>on the unemployment rate than the payroll employment numbers.

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<v Speaker 2>Eric, As you look at the dual mandate at the moment,

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<v Speaker 2>and this really speaks to the divide of the Federal Reserve.

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<v Speaker 2>There are some individuals who want to focus on the

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<v Speaker 2>employment side of the mandate, others who still want to

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<v Speaker 2>focus on the price stability side of the mandate. Can

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<v Speaker 2>you share with us your experience. Did you prioritize one

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<v Speaker 2>side over the other? Are they created equally.

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

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<v Speaker 1>not given the waiting function, so each person can kind

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<v Speaker 1>of choose for themselves what they think is most important

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<v Speaker 1>at the time. But the framework document actually talks about

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<v Speaker 1>what you should do when both elements of the mandate

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<v Speaker 1>are not where you want it, And in that document

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<v Speaker 1>it argues that you should look at how far away

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<v Speaker 1>you are from where you want to be and how

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

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<v Speaker 1>you look at the core PCE, we're at two point

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<v Speaker 1>eight percent, and most people think it's going to take

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<v Speaker 1>quite some time for us to get back to two percent.

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<v Speaker 1>If you look at the unemployment rate, we're right at

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<v Speaker 1>four point two percent. So despite the weak labor supply

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

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

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<v Speaker 1>So while I know a number of participants at the

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<v Speaker 1>FMC are talking about concern about the employment mandate, it

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<v Speaker 1>actually is exactly where they forecast they want it to be,

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<v Speaker 1>which is at full employment.

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<v Speaker 3>Basically, what you outline there says that the Fed shouldn't

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<v Speaker 3>be cutting just yet. So is there a bias to

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<v Speaker 3>a weakening labor market?

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<v Speaker 1>So it depends on a forecast, and I would say

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<v Speaker 1>private sector economists do not see a rapidly rising unemployment

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<v Speaker 1>rate and do not see an elevated risk of seeing

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<v Speaker 1>a recession. So I would think the rhetoric around the

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<v Speaker 1>labor market would be more consistent if the private sector

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<v Speaker 1>was seeing more evidence in the data that the unemployment

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<v Speaker 1>rate looked like it was going to rise, that initial

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<v Speaker 1>claims was going to rise. So I think at this case,

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<v Speaker 1>at this time, it's a little bit odd to overweight

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<v Speaker 1>the employment part of the dual mandate?

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<v Speaker 2>Eric, can we just sit on the data and I

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

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<v Speaker 2>going to include you in any of that whatsoever. We're

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<v Speaker 2>always dependent on the data, and there's been a question

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<v Speaker 2>for a long long time about how dependable the data

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<v Speaker 2>actually is. Particularly the labor market data prone to very

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<v Speaker 2>large revisions. We saw that last year. We've seen it

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<v Speaker 2>many times in the past as well. Eric, How did

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<v Speaker 2>you manage that situation? Were you less sensitive to incoming

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<v Speaker 2>monthly reads and knowing that at some point future they

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<v Speaker 2>would be revised, how did you approach it?

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<v Speaker 1>So if you focus on a forecast month to month,

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<v Speaker 1>doesn't matter nearly as much as where you expect things

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<v Speaker 1>to go over time. And as you point out, the

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<v Speaker 1>labor market data, particularly the payroll numbers, can be pretty jumpy.

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

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<v Speaker 1>It's because they do a survey and if people don't

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<v Speaker 1>fill out their survey forms on time, then in the

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<v Speaker 1>revision they pick up the additional surveys and so depending

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<v Speaker 1>on what the response rate is, and the response rate

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<v Speaker 1>has been going down on many US government surveys, it

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<v Speaker 1>becomes less accurate, and the revisions can be larger as

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<v Speaker 1>they get additional data. So you never should put too

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<v Speaker 1>much weight on any one data point. You're really looking

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<v Speaker 1>for a trend you're not actually looking for. While Wall

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<v Speaker 1>Street focuses on beating expectations and having a number comparing

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<v Speaker 1>the current number to what they expected, bankers should really

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<v Speaker 1>be worried more about long term trends. So long term

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

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<v Speaker 1>so you should smooth through most of that data, and

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<v Speaker 1>that's what most forecasts end up doing.

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<v Speaker 3>Do you think there's concern though, that now the US

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<v Speaker 3>data is no longer considered the gold standard given the

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<v Speaker 3>fact that the President ousted the commissioner of the BLS.

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<v Speaker 1>Well, it depends on who he gets who replaces at

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<v Speaker 1>the BLS, but it would be very disturbing if you

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<v Speaker 1>didn't have reliance on the data and the US not

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<v Speaker 1>just the BLS data, but the GDP data, the inflation data.

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<v Speaker 1>All that data is critical to making good policy choices.

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<v Speaker 1>And if that data is manipulated in some way so

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<v Speaker 1>that you can't rely on it, it becomes very problematic

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<v Speaker 1>for policy, and while the initial changes are probably not

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<v Speaker 1>going to be that noticeable, over time they can create havoc,

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<v Speaker 1>and I think you see examples of that, and the

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<v Speaker 1>Wall Street Journal did an article on what happened in

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<v Speaker 1>Argentina when they started manipulating the data. China has been

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<v Speaker 1>famous for dropping series that didn't work in the way

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<v Speaker 1>they were hoping. So, for example, youth unemployment is not

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<v Speaker 1>reported anymore on a consistent basis, but you see young

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<v Speaker 1>people coming to the United States because they can't get

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<v Speaker 1>jobs in China. So you can conceal to some extent

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<v Speaker 1>data and for months to month you can get slightly

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

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<v Speaker 1>becomes obvious to the public.

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

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<v Speaker 3>is an individual that is already working with him as

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<v Speaker 3>one of his economists the head of the CEA less

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<v Speaker 3>than a year ago, Myron was against cuts at the FED.

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<v Speaker 3>Does he look purely political now, potentially to his new

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<v Speaker 3>colleagues at the FOMC.

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<v Speaker 1>I think there is a consistency problem. He has traditionally

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<v Speaker 1>been somebody very concerned about the inflation part of the mandate,

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<v Speaker 1>and so his newfound interest in the labor market and

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<v Speaker 1>the need to lower interest rates looks somewhat out of

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<v Speaker 1>character from what he was concerned about. Over time, he's

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<v Speaker 1>written about being concerned that there's too much politics of

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<v Speaker 1>the FED. He obviously has been a strong proponent of

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<v Speaker 1>this administration's policies and seems to be a proponent of

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<v Speaker 1>lowering interest rates, which has been advocated by the administration.

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<v Speaker 1>So what you're looking for is an independent FED. He

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<v Speaker 1>probably is not the perfect choice to ratify an independent FED.

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<v Speaker 2>Eric, I appreciate your opinion. Thank you, sir. The former

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<v Speaker 2>paston FED President there Eric Rosengrant