Bloomberg Audio Studios, podcasts, radio news. Eric Rosngrin joins us right now, former Federal Reserve President of Boston, and Eric, I do want to start off with the general idea of what the FED can do next, given the economic data that we've seen that seems to suggests a labor market influx but still stable, and inflation well still a question mark, but not necessarily hot as it was just a year or so ago.
Yeah, so I agree with you that the conditions for easing right now are not nearly as strong as they might have been a quarter ago. The CPI at two point seven percent is substantially above the two percent inflation target. It was two point seven last month as well, and if you look at the PCE measure of inflation is
been gradually rising. So the result is that the inflation news has not been such that you can have a great deal of confidence if the Fed's going to get back to target, particularly as you note they've missed their two percent target for almost five years. On the labor market side, there were only fifty thousand jobs created, but that's the average that we've seen over the last year, and part of that is because of immigration, with much less immigration, we don't have as much growth in the
labor force. In fact, labor force has been pretty much flat, and so fifty thousand jobs isn't that far out of the ordinary given the slow growth in the labor force. The unemployment rates at four point four percent, that's very close to what the FED thinks it will be in the long run. It's a little bit above, but only a little bit above. So I think that the Fed is well situated to wait and see and see if the economy picks up. There is reasonable weave that next
year GDP will be stronger. Fiscal policy is going to be stimulative because we're running large deficits. The Big Beautiful Bill included investment credits that encourage investment and also has lower taxes for helping consumers out. So I think the conditions for reasonable growth next year are there, and so as long as that actually pans out, there's really no reason for the Fed to change the level of rates.
There has been sort of a parlor game going on right now in financial markets, the idea that one way or another we are going to see more accommodative policy out of the FED this year, largely because of the political factors here, whether it is the formal replacement of J. Powell, it is expected departure date later this year in May,
or maybe potentially sooner than that. But just overall, the idea that you have a White House it seems emboldened in its desire to continue jaw boning where it thinks monetary policies should go. Well, Eric, I know I heard from all these former FED members that say, look, you go into that room, you focus on the data, not the politics going on down the street out of the White House. This just feels a little bit different here in twenty twenty six, though.
Well, I agree with the commentators that have said that the FED tends to focus on the data, but it does matter who's in positions to make the decisions. And so J. Powell's term ends in May, and assuming that the administration comes up with someone to replace Jay and it gets sent that person gets Senate confirmation, the Administration's made clear that they're not going to point somebody who doesn't believe that interest rates should drop quite significantly, which
has been clearly expressed by the President. So I think most of the optimism for interest rates coming down assumes that it's going to happen in the second half the year, when there's a new FED share in place, Well, it's still a committee decision. Whoever gets picked has to have enough credibility and has to have strong enough arguments that he convinces a majority of the FOMC to vote their way.
So it's still not a slam dunk. Even with the new FED share that rates actually declined, particularly if the administration jaw boning and potential legal challenges raise concerns about federal reserve and independence and make some of the voting members want to be sure that the economic conditions justify a move.
Well, given the DOJ subpoenas into Pale ostensibly into Pal's handling other renovations of the FED building, given the Supreme or Court argument scheduled to start next week involving Lisa Cook, and the power of the President to actually remove a FED governor, seemingly at will I am curious Eric about this idea of fedder independence and whether we should really start looking at this is the beginning of the end, particularly given the comments out of the three former FED
chiefs yesterday, their statement that they sign the support today that we saw from monetary policy officials overseas, as well as executives like JP Morgan CEO Jamie Diamond.
Yeah, so FED independence is critically important. Normally, losing FED is something that happens in third world countries where either they're having trouble managing your deficit and want to get the interest rates down to make it easier to issue debt, or they're trying to get interest rates down because they think it will help them get elected in the upcoming election. The Federal Reserve was constructed to be pretty independent from the rest of government so that this kind of political
business cycle doesn't actually occur in the United States. So to the extent that various actions by the end administration undermine the belief that the FED will stay independent, it will make harder for the next chair to actually lower interest rates convince people that they are truly independent, and runs the risk if people start becoming concerned that the FED no longer is going to focus on inflation, that even if interest rates go down at the short end,
the long end will go up as people become concerned that the policies will generate ongoing inflation higher than what we've historically had.
All Right, Eric, I have to leave. They always appreciate getting your comments here. Eric rosen Grand, of course, former president of the Federal Reserve Bank of Boston,