Former Boston Fed President Eric Rosengren Talks Recession

Former Federal Reserve Bank of Boston President Eric Rosengren says a US recession is likely this summer unless the Trump administration pulls back on its tariff policy. He expects the Federal Reserve to move slowly until it's apparent "what the inflation and employment shocks are." He is joined by Bloomberg's Jonathan Ferro and Lisa Abramowicz.

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Episode Transcript

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

Speaker 2 (00:06):
Let's get to our next guests. They former Boston FED
president Eric Rosenngrant joined US now for more. Eric, welcome
back to the program sir. There's the data abs and
payrolls on Friday. How would you approach an FMC meeting
like the one week get next week?

Speaker 3 (00:21):
Well, first, as Mike highlighted, it's a pretty noisy number.
It's partly noisy because a lot of behavior changed to
reflect the fact that the tariffs were telegraphed. So people
didn't know the extent of the tariffs. They didn't know
exactly the distribution around countries, but they didn't know that
tariffs were coming, and there were certain sectors that you

(00:43):
would have expected to be tariffed. As a result, many
people and many firms stockpiled ahead, tried to get ahead
of the tariffs, and that shows up in imports, that
shows up in inventories, which is exactly what you're seeing
in the data. So what it does reflect is enough

(01:03):
concern that many people and many organizations try to front
run the tariffs. Now, in terms of going forward, this
doesn't include any of the information from the so called
Liberation Day, so people didn't know during the first quarter
exactly what the tariff situation was going to be, and
I think most people were surprised by how significant the

(01:25):
tariffs were. So I think what we're seeing now is
the positioning going into Liberation Day, and we're going to
still need some additional data after the beginning of April
to get a better sense of how much weak are
the economy is going to be. But I would say
the high frequency data that are coming in are highlighting
that the Chinese tariffs in particular are basically acting like

(01:49):
an embargo, and that means that it's very likely that
they're going to be much higher prices in some shortages
of goods that are primarily imported from China.

Speaker 2 (01:59):
Eric, what's the timeline that you've got in mind. So
we've seen this show up in shipping and frank bookings.
Now I'm starting to wonder when we actually see it
show up in the shelves when people walk into the store,
what are they going to notice a difference.

Speaker 3 (02:11):
I think you're going to really start seeing it towards
the end of the summer, so most retailers, most stores
stockpiled inventory. Again, it was highlighted by the president that
he was planning on putting tariffs on so it's not
surprising that most stores tried to stock up on anything
that was produced internationally that might be tariffed, so they

(02:32):
have some inventories to go through. It takes a while
to ship goods from around the world. So the combination
of lags getting into the economy and the fact that
there were some inventories that are probably going to shelter
some of the blow. I would expect the bulk of
the challenge to start being in towards middle to end

(02:55):
of the summer.

Speaker 1 (02:56):
Given the lag in time before we actually see the
ramifications and the hard data.

Speaker 2 (03:01):
How do you.

Speaker 1 (03:01):
Understand the soft data that some people say is incredibly
and increasingly noisy, and other people say is a prediction
of what's to come.

Speaker 3 (03:10):
So things like some of the consumer surveys have shown
very dramatic change. I would say that's noisy numbers, but
it doesn't mean that it's data that you should completely ignore.
So I think consumers are very concerned about what the
price effects are going to be and are starting to

(03:31):
worry about how much they're going to be affected. I
think a lot of people are also concerned about rising unemployment,
and the ADP report, as you highlighted, was relatively weak.
So I think there's going to be growing concern as
we get into the summer that we are likely to
see a recession. A lot of economists are beginning to

(03:53):
predict that, and I think there is a chance, unless
the administration pulls back on its tariff polls, that we
will see some pretty slow growth and continued problems in
the hard data as we get into the summer.

Speaker 1 (04:07):
We're in the quiet period for the Federal Reserve members
ahead of the FED meeting next week. There has been
a lot of communication about just what they see and
how they perceive the potential risks going forward of both
inflation or weaker growth or disinflation among some. Do you
think that at a time like this there should be
more communication or less communication from the Fed members?

Speaker 3 (04:29):
Well, what you need is clear communication, and I think
it's very difficult at this time to be particularly clear.
First of all, we don't know if some of the
policies are going to be reversed. It is possible that
negotiations go well with some of the foreign trading partners
and agreements are made quickly. Now most trade agreements take

(04:50):
years to actually negotiate, so my guess is it's going
to be more of a letter of intent than it's
going to be an actual agreement. But nonetheless, there's a
lot of un certainty about how long this policy sticks,
and then there's the question of how it starts affecting
individual behavior. These tariffs are much much larger than anything

(05:11):
we've seen since the Great Depression, so our statistical models
don't have this kind of foreign shock in the data,
so I think they're going to end. The other issue
is what you highlighted in the opening, which was it's
a problem both for unemployment and inflation, and that makes
it more difficult for the FED. The FED is going

(05:32):
to be concerned that the inflation numbers are already up
and it's before the full impact of the tariffs, and
if we start seeing inflation rates at three and a
half or four percent, which given depending on where the
tariffs end up, at least the reported data over the
course of this year could get that high, that's going
to make it difficult for the FED to be reacting

(05:53):
preemptively to any concerns they have about growing recession concerns.
So it's a very position for the FED to be
in and I think they're going to move relatively slowly
until it's apparent exactly what the inflation employment shocks are.

Speaker 2 (06:08):
Eric, before you go, just one final question. The President
went after the FED share again just yesterday. Does that
complicate life for the FMC in any way, shape or
form next week and beyond.

Speaker 3 (06:21):
I don't think it really complicates the FMC. They're going
to do what they think is right. But what it
does complicate is if people are worried that the independence
of the FED is undermined, it's going to be much
more difficult to finance our deficit. The relationship that you
were talking about between the stock market and the bond
market probably will be less correlated than in the past,

(06:44):
and if we're not careful, we'll lose the safe haven
behavior that we normally expect when an economy slows down.
So it's going to limit the fiscal authority as well
as the monetary authority.

Speaker 2 (06:55):
Eric, appreciate your mind as always and your thoughts at
Rosenngrant the form of Boston and President