Former Boston Fed President Eric Rosengren Talks Recession
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Bloomberg Audio Studios. Podcasts, radio, news. Let's get to our next guest, the former Boston Fed President Eric Rosengren joins us now for more. Eric, welcome back to the program, sir. There's the data, absent payrolls on Friday. How would you approach a FOMC meeting like the one we get next week? 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 did know that tariffs were coming and there were certain sectors that you 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 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 that

by how significant the 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 weaker 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 an embargo. And that means that it's very likely that there are going to be much higher prices and some shortages of goods that are primarily imported from China. Eric, what's the timeline that you've got in mind? So we've seen this show up in shipping and freight bookings. Now I'm starting to wonder when we actually see it show up in the shelves. When people walk into the store, when are they going to notice a difference?

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 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 of the summer. Given the lag in time before we actually see the ramifications and the hard data, how do you 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? So things like some of the consumer surveys

have shown a 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 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 predict that.

And I think there is a chance, unless the administration pulls back on its tariff policy, that we will see some pretty slow growth and continued problems in the hard data as we get into the summer. We're in the quiet period for the Federal Reserve members ahead of the Fed meeting next week. There has been, though, 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?

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 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 uncertainty 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 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, and 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 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 3.5% or 4%, 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 preemptively to any concerns they have about

growing recession concerns. So it's a very awkward 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. Eric, before you go, just one final question. The president went after the Fed chair again just yesterday. Does that complicate life for the FOMC in any way, shape or form next week and beyond?

I don't think it really complicates the FOMC. 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. And if we're not careful, we'll lose the safe haven relationship

that we normally expect when an economy slows down. So it's going to limit the fiscal authority as well as the monetary authority. Eric, appreciate your mind, as always, and your thoughts. Eric Rosengren, the former Boston Fed president. Switch to Verizon Business and get more from your internet without paying more for your internet. Get LTE Business Internet starting at $39 a month when paired with select business mobile plans. That's unlimited data.

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