Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Joining us now if the former Boston Fed President Eric Rosengrant,
Speaker 2: welcome back to the program Sir, some healthy debate at
Speaker 2: the feder Reserve. Let's call it what it is. It
Speaker 2: is healthy. Do you think September is too early to
Speaker 2: settle the debate?
Speaker 1: I think it depends on how the data comes in.
Speaker 1: We have two CPI reports, one PCE report, and one
Speaker 1: employment report. Data can be pretty noisy, so I think
Speaker 1: we need to see what things look like as we
Speaker 1: get into September. But I agree that if the CPI
Speaker 1: and PCE are reasonably well restrained and the labor market
Speaker 1: looks sweat, then it would be appropriate to ease rates. However,
Speaker 1: it's also quite possible that we'll see a slowly increasing
Speaker 1: inflation rate. I'm expecting the CPI will probably be the
Speaker 1: core cpi'll be above three percent when it comes out tomorrow,
Speaker 1: and if we start seeing numbers that look higher than
Speaker 1: the markets expecting, sentiment can change pretty quickly. So I
Speaker 1: think it's a little too soon to call September. I
Speaker 1: think the Fed was acting appropriately when I wanted to
Speaker 1: wait and see, because right now, while the payroll employment
Speaker 1: was weak. The unemployment rate was four point two percent,
Speaker 1: and the labor market has had a labor supply shock,
Speaker 1: so you probably want to focus a little bit more
Speaker 1: on the unemployment rate than the payroll employment numbers.
Speaker 2: Eric, As you look at the dual mandate at the moment,
Speaker 2: and this really speaks to the divide of the Federal Reserve.
Speaker 2: There are some individuals who want to focus on the
Speaker 2: employment side of the mandate, others who still want to
Speaker 2: focus on the price stability side of the mandate. Can
Speaker 2: you share with us your experience. Did you prioritize one
Speaker 2: side over the other? Are they created equally.
Speaker 1: So everybody can vote and weigh I mean, it's you're
Speaker 1: not given the waiting function, so each person can kind
Speaker 1: of choose for themselves what they think is most important
Speaker 1: at the time. But the framework document actually talks about
Speaker 1: what you should do when both elements of the mandate
Speaker 1: are not where you want it, And in that document
Speaker 1: it argues that you should look at how far away
Speaker 1: you are from where you want to be and how
Speaker 1: long it'll take to get there. So on inflation, if
Speaker 1: you look at the core PCE, we're at two point
Speaker 1: eight percent, and most people think it's going to take
Speaker 1: quite some time for us to get back to two percent.
Speaker 1: If you look at the unemployment rate, we're right at
Speaker 1: four point two percent. So despite the weak labor supply
Speaker 1: that's been happening, the labor market doesn't look to be
Speaker 1: in that much trouble. You don't see initial claims rising rapidly.
Speaker 1: So while I know a number of participants at the
Speaker 1: FMC are talking about concern about the employment mandate, it
Speaker 1: actually is exactly where they forecast they want it to be,
Speaker 1: which is at full employment.
Speaker 3: Basically, what you outline there says that the Fed shouldn't
Speaker 3: be cutting just yet. So is there a bias to
Speaker 3: a weakening labor market?
Speaker 1: So it depends on a forecast, and I would say
Speaker 1: private sector economists do not see a rapidly rising unemployment
Speaker 1: rate and do not see an elevated risk of seeing
Speaker 1: a recession. So I would think the rhetoric around the
Speaker 1: labor market would be more consistent if the private sector
Speaker 1: was seeing more evidence in the data that the unemployment
Speaker 1: rate looked like it was going to rise, that initial
Speaker 1: claims was going to rise. So I think at this case,
Speaker 1: at this time, it's a little bit odd to overweight
Speaker 1: the employment part of the dual mandate?
Speaker 2: Eric, can we just sit on the data and I
Speaker 2: want to avoid the politics. Don't worry about that, not
Speaker 2: going to include you in any of that whatsoever. We're
Speaker 2: always dependent on the data, and there's been a question
Speaker 2: for a long long time about how dependable the data
Speaker 2: actually is. Particularly the labor market data prone to very
Speaker 2: large revisions. We saw that last year. We've seen it
Speaker 2: many times in the past as well. Eric, How did
Speaker 2: you manage that situation? Were you less sensitive to incoming
Speaker 2: monthly reads and knowing that at some point future they
Speaker 2: would be revised, how did you approach it?
Speaker 1: So if you focus on a forecast month to month,
Speaker 1: doesn't matter nearly as much as where you expect things
Speaker 1: to go over time. And as you point out, the
Speaker 1: labor market data, particularly the payroll numbers, can be pretty jumpy.
Speaker 1: And the reason for that is not because anybody's manipulating it.
Speaker 1: It's because they do a survey and if people don't
Speaker 1: fill out their survey forms on time, then in the
Speaker 1: revision they pick up the additional surveys and so depending
Speaker 1: on what the response rate is, and the response rate
Speaker 1: has been going down on many US government surveys, it
Speaker 1: becomes less accurate, and the revisions can be larger as
Speaker 1: they get additional data. So you never should put too
Speaker 1: much weight on any one data point. You're really looking
Speaker 1: for a trend you're not actually looking for. While Wall
Speaker 1: Street focuses on beating expectations and having a number comparing
Speaker 1: the current number to what they expected, bankers should really
Speaker 1: be worried more about long term trends. So long term
Speaker 1: trends don't get affected as much by a single data point,
Speaker 1: so you should smooth through most of that data, and
Speaker 1: that's what most forecasts end up doing.
Speaker 3: Do you think there's concern though, that now the US
Speaker 3: data is no longer considered the gold standard given the
Speaker 3: fact that the President ousted the commissioner of the BLS.
Speaker 1: Well, it depends on who he gets who replaces at
Speaker 1: the BLS, but it would be very disturbing if you
Speaker 1: didn't have reliance on the data and the US not
Speaker 1: just the BLS data, but the GDP data, the inflation data.
Speaker 1: All that data is critical to making good policy choices.
Speaker 1: And if that data is manipulated in some way so
Speaker 1: that you can't rely on it, it becomes very problematic
Speaker 1: for policy, and while the initial changes are probably not
Speaker 1: going to be that noticeable, over time they can create havoc,
Speaker 1: and I think you see examples of that, and the
Speaker 1: Wall Street Journal did an article on what happened in
Speaker 1: Argentina when they started manipulating the data. China has been
Speaker 1: famous for dropping series that didn't work in the way
Speaker 1: they were hoping. So, for example, youth unemployment is not
Speaker 1: reported anymore on a consistent basis, but you see young
Speaker 1: people coming to the United States because they can't get
Speaker 1: jobs in China. So you can conceal to some extent
Speaker 1: data and for months to month you can get slightly
Speaker 1: better numbers. But over time, if you're manipulating the data
Speaker 1: becomes obvious to the public.
Speaker 3: Eric the President's nomination to fill Governor Coogler seat Stephen Myron,
Speaker 3: is an individual that is already working with him as
Speaker 3: one of his economists the head of the CEA less
Speaker 3: than a year ago, Myron was against cuts at the FED.
Speaker 3: Does he look purely political now, potentially to his new
Speaker 3: colleagues at the FOMC.
Speaker 1: I think there is a consistency problem. He has traditionally
Speaker 1: been somebody very concerned about the inflation part of the mandate,
Speaker 1: and so his newfound interest in the labor market and
Speaker 1: the need to lower interest rates looks somewhat out of
Speaker 1: character from what he was concerned about. Over time, he's
Speaker 1: written about being concerned that there's too much politics of
Speaker 1: the FED. He obviously has been a strong proponent of
Speaker 1: this administration's policies and seems to be a proponent of
Speaker 1: lowering interest rates, which has been advocated by the administration.
Speaker 1: So what you're looking for is an independent FED. He
Speaker 1: probably is not the perfect choice to ratify an independent FED.
Speaker 2: Eric, I appreciate your opinion. Thank you, sir. The former
Speaker 2: paston FED President there Eric Rosengrant