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

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Speaker 2: So here's the LCENUS this morning, try to increase an

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Speaker 2: expectation for FED rate cuts. The view from the former

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Speaker 2: Boston FED president Eric Rosenngrant looks like this. He writes,

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Speaker 2: the FED maybe slow to react give an uncertainty around

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Speaker 2: the trade policy and the likely significant impact on reported

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Speaker 2: inflation over the next six months. Eric, Welcome to the program, sir,

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Speaker 2: lucky for us to lean on your experience. How misplaced

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Speaker 2: or well placed is that bet on that FED cutting rates.

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Speaker 1: I think it's a very challenging environment for the FED.

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Speaker 1: First of all, while the tariffs have come on and

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Speaker 1: are quite significant, the retaliation is just being announced now.

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Speaker 1: We had China today, but Europe is certainly going to

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Speaker 1: be retaliating as well. The question is how long are

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Speaker 1: these tariffs going to be in place. The administration has

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Speaker 1: been pretty unclear as to the purpose of the tariffs.

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Speaker 1: If the purpose is to raise taxes and bring manufacturing here,

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Speaker 1: the tariffs need to be permanent. If the purpose is

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Speaker 1: a negotiating tool, then it's going to be temporary. So

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Speaker 1: the FED, first of all, has to be concerned that

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Speaker 1: the shock that's occurred could be offset pretty quickly by

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Speaker 1: If tariffs are a serious policy mistake, the most efficient

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Speaker 1: way to address that problem is for the tariffs to

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Speaker 1: be taken off. In the event that the tariffs are

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Speaker 1: kept on and look more permanent, then you have an

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Speaker 1: environment where both the unemployment rate is going to go

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Speaker 1: up and the inflation rate's going to go up. The

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Speaker 1: inflation rate is probably going to start showing in the

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Speaker 1: next couple of months the effect of tariffs. It's a tax,

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Speaker 1: it's going to go through relatively quickly. There's some goods

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Speaker 1: that are probably already being repriced in reflection of the

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Speaker 1: tariff changes. The unemployment rate effect is likely to be

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Speaker 1: a little bit more slow moving. So, given the uncertainty

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Speaker 1: around what the policy actually is, and given the fact

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Speaker 1: that the first impulse is likely to be on the

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Speaker 1: inflation side, I think the FED is going to be

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Speaker 1: very reluctant to move very quickly if it looks like

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Speaker 1: we are actually going to go into a global recession

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Speaker 1: where the unemployment rate in the United States goes up

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Speaker 1: quite significantly. And that's a situation that the FED obviously

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Speaker 1: has to react to. But hopefully there are other off ramps,

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Speaker 1: including changes in fiscal policy regarding tariffs that will avoid that.

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Speaker 1: I think the last thing that FED wants to do

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Speaker 1: is perpetuate a view that inflation is going to be

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Speaker 1: tolerated over three percent. I think it's quite likely that

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Speaker 1: we're going to see a half percent increase in core

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Speaker 1: PCE over the course of this year, and that puts

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Speaker 1: US over three percent, puts US at three point three percent.

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Speaker 1: That's not inflation rate consistent with the Fed's time, and

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Speaker 1: I think it's going to make the FED very reluctant

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Speaker 1: to move quickly to address some of the concerns that

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Speaker 1: are occurring in financial markets and are likely to be

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Speaker 1: occurring in unemployment rate over time. Just quickly. Here, I'm

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Speaker 1: wondering if you think then the FED is destined to

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Speaker 1: be late and if they cut much more on the

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Speaker 1: back end, if the unemployment rate starts going up dramatically,

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Speaker 1: it'll cut a lot in the end. That's a really

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Speaker 1: bad outcome if it gets to that point. But I

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Speaker 1: think they're going to move slowly, gradually and reluctantly. And

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Speaker 1: when they move, if it's because the global economy is

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Speaker 1: going into a deep recession, I think it will have

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Speaker 1: to then start moving quickly to bring interest rates down. Unfortunately,

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Speaker 1: it's unlikely to immediately be able to offset the nature

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Speaker 1: of the problem, which is bad tariffs. And one thing

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Speaker 1: people are not talking about is developing countries are likely

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Speaker 1: to be experience and seeing a financial crisis. Many of

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Speaker 1: the poorest countries in the world are getting the highest

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Speaker 1: earths from the United States, and that could exacerbate the

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Speaker 1: international composition of what's going on.

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Speaker 2: That's the last thing we want to say this morning,

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Speaker 2: that's for sure. Eric, appreciate you jumping on this morning.

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Speaker 2: Thank you, sir. The Boston Fed president, the former Boston

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Speaker 2: Fed president there, Eric Rosengrant