Eric Rosengren Talks Fed Cuts, Dual Mandate, Stephen Miran

Former Boston Fed President Eric Rosengren says “it’s a little too soon to call September” as he examines US economic data and discusses the process of considering the Federal Reserve’s dual mandate. Rosengren also explains why he sees a “consistency problem” with Stephen Miran, President Donald Trump’s nominee for a seat on the Fed’s Board of Governors that expires in January. He speaks with Bloomberg's Jonathan Ferro and Annmarie Hordern. 

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.

Speaker 2 (00:08):
Joining us now if the former Boston Fed President Eric Rosengrant,
welcome back to the program Sir, some healthy debate at
the feder Reserve. Let's call it what it is. It
is healthy. Do you think September is too early to
settle the debate?

Speaker 1 (00:20):
I think it depends on how the data comes in.
We have two CPI reports, one PCE report, and one
employment report. Data can be pretty noisy, so I think
we need to see what things look like as we
get into September. But I agree that if the CPI
and PCE are reasonably well restrained and the labor market

(00:41):
looks sweat, then it would be appropriate to ease rates. However,
it's also quite possible that we'll see a slowly increasing
inflation rate. I'm expecting the CPI will probably be the
core cpi'll be above three percent when it comes out tomorrow,
and if we start seeing numbers that look higher than
the markets expecting, sentiment can change pretty quickly. So I

(01:04):
think it's a little too soon to call September. I
think the Fed was acting appropriately when I wanted to
wait and see, because right now, while the payroll employment
was weak. The unemployment rate was four point two percent,
and the labor market has had a labor supply shock,
so you probably want to focus a little bit more
on the unemployment rate than the payroll employment numbers.

Speaker 2 (01:28):
Eric, As you look at the dual mandate at the moment,
and this really speaks to the divide of the Federal Reserve.
There are some individuals who want to focus on the
employment side of the mandate, others who still want to
focus on the price stability side of the mandate. Can
you share with us your experience. Did you prioritize one
side over the other? Are they created equally.

Speaker 1 (01:45):
So everybody can vote and weigh I mean, it's you're
not given the waiting function, so each person can kind
of choose for themselves what they think is most important
at the time. But the framework document actually talks about
what you should do when both elements of the mandate
are not where you want it, And in that document

(02:06):
it argues that you should look at how far away
you are from where you want to be and how
long it'll take to get there. So on inflation, if
you look at the core PCE, we're at two point
eight percent, and most people think it's going to take
quite some time for us to get back to two percent.
If you look at the unemployment rate, we're right at
four point two percent. So despite the weak labor supply

(02:28):
that's been happening, the labor market doesn't look to be
in that much trouble. You don't see initial claims rising rapidly.
So while I know a number of participants at the
FMC are talking about concern about the employment mandate, it
actually is exactly where they forecast they want it to be,
which is at full employment.

Speaker 3 (02:50):
Basically, what you outline there says that the Fed shouldn't
be cutting just yet. So is there a bias to
a weakening labor market?

Speaker 1 (02:57):
So it depends on a forecast, and I would say
private sector economists do not see a rapidly rising unemployment
rate and do not see an elevated risk of seeing
a recession. So I would think the rhetoric around the
labor market would be more consistent if the private sector

(03:19):
was seeing more evidence in the data that the unemployment
rate looked like it was going to rise, that initial
claims was going to rise. So I think at this case,
at this time, it's a little bit odd to overweight
the employment part of the dual mandate?

Speaker 2 (03:34):
Eric, can we just sit on the data and I
want to avoid the politics. Don't worry about that, not
going to include you in any of that whatsoever. We're
always dependent on the data, and there's been a question
for a long long time about how dependable the data
actually is. Particularly the labor market data prone to very
large revisions. We saw that last year. We've seen it
many times in the past as well. Eric, How did

(03:54):
you manage that situation? Were you less sensitive to incoming
monthly reads and knowing that at some point future they
would be revised, how did you approach it?

Speaker 1 (04:03):
So if you focus on a forecast month to month,
doesn't matter nearly as much as where you expect things
to go over time. And as you point out, the
labor market data, particularly the payroll numbers, can be pretty jumpy.
And the reason for that is not because anybody's manipulating it.
It's because they do a survey and if people don't
fill out their survey forms on time, then in the

(04:27):
revision they pick up the additional surveys and so depending
on what the response rate is, and the response rate
has been going down on many US government surveys, it
becomes less accurate, and the revisions can be larger as
they get additional data. So you never should put too
much weight on any one data point. You're really looking

(04:47):
for a trend you're not actually looking for. While Wall
Street focuses on beating expectations and having a number comparing
the current number to what they expected, bankers should really
be worried more about long term trends. So long term
trends don't get affected as much by a single data point,

(05:08):
so you should smooth through most of that data, and
that's what most forecasts end up doing.

Speaker 3 (05:13):
Do you think there's concern though, that now the US
data is no longer considered the gold standard given the
fact that the President ousted the commissioner of the BLS.

Speaker 1 (05:22):
Well, it depends on who he gets who replaces at
the BLS, but it would be very disturbing if you
didn't have reliance on the data and the US not
just the BLS data, but the GDP data, the inflation data.
All that data is critical to making good policy choices.

(05:45):
And if that data is manipulated in some way so
that you can't rely on it, it becomes very problematic
for policy, and while the initial changes are probably not
going to be that noticeable, over time they can create havoc,
and I think you see examples of that, and the
Wall Street Journal did an article on what happened in

(06:06):
Argentina when they started manipulating the data. China has been
famous for dropping series that didn't work in the way
they were hoping. So, for example, youth unemployment is not
reported anymore on a consistent basis, but you see young
people coming to the United States because they can't get
jobs in China. So you can conceal to some extent

(06:29):
data and for months to month you can get slightly
better numbers. But over time, if you're manipulating the data
becomes obvious to the public.

Speaker 3 (06:37):
Eric the President's nomination to fill Governor Coogler seat Stephen Myron,
is an individual that is already working with him as
one of his economists the head of the CEA less
than a year ago, Myron was against cuts at the FED.
Does he look purely political now, potentially to his new
colleagues at the FOMC.

Speaker 1 (06:57):
I think there is a consistency problem. He has traditionally
been somebody very concerned about the inflation part of the mandate,
and so his newfound interest in the labor market and
the need to lower interest rates looks somewhat out of
character from what he was concerned about. Over time, he's

(07:18):
written about being concerned that there's too much politics of
the FED. He obviously has been a strong proponent of
this administration's policies and seems to be a proponent of
lowering interest rates, which has been advocated by the administration.
So what you're looking for is an independent FED. He
probably is not the perfect choice to ratify an independent FED.

Speaker 2 (07:41):
Eric, I appreciate your opinion. Thank you, sir. The former
paston FED President there Eric Rosengrant