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So here's the LCENUS this morning, try to increase an expectation for FED rate cuts. The view from the former Boston FED president Eric Rosenngrant looks like this. He writes, the FED maybe slow to react give an uncertainty around the trade policy and the likely significant impact on reported inflation over the next six months. Eric, Welcome to the program, sir, lucky for us to lean on your experience. How misplaced or well placed is that bet on that FED cutting rates.
I think it's a very challenging environment for the FED. First of all, while the tariffs have come on and are quite significant, the retaliation is just being announced now. We had China today, but Europe is certainly going to be retaliating as well. The question is how long are these tariffs going to be in place. The administration has been pretty unclear as to the purpose of the tariffs. If the purpose is to raise taxes and bring manufacturing here,
the tariffs need to be permanent. If the purpose is a negotiating tool, then it's going to be temporary. So the FED, first of all, has to be concerned that the shock that's occurred could be offset pretty quickly by If tariffs are a serious policy mistake, the most efficient way to address that problem is for the tariffs to be taken off. In the event that the tariffs are kept on and look more permanent, then you have an environment where both the unemployment rate is going to go
up and the inflation rate's going to go up. The inflation rate is probably going to start showing in the next couple of months the effect of tariffs. It's a tax, it's going to go through relatively quickly. There's some goods that are probably already being repriced in reflection of the tariff changes. The unemployment rate effect is likely to be
a little bit more slow moving. So, given the uncertainty around what the policy actually is, and given the fact that the first impulse is likely to be on the inflation side, I think the FED is going to be very reluctant to move very quickly if it looks like we are actually going to go into a global recession where the unemployment rate in the United States goes up quite significantly. And that's a situation that the FED obviously
has to react to. But hopefully there are other off ramps, including changes in fiscal policy regarding tariffs that will avoid that. I think the last thing that FED wants to do is perpetuate a view that inflation is going to be tolerated over three percent. I think it's quite likely that we're going to see a half percent increase in core PCE over the course of this year, and that puts US over three percent, puts US at three point three percent.
That's not inflation rate consistent with the Fed's time, and I think it's going to make the FED very reluctant to move quickly to address some of the concerns that are occurring in financial markets and are likely to be occurring in unemployment rate over time. Just quickly. Here, I'm wondering if you think then the FED is destined to be late and if they cut much more on the back end, if the unemployment rate starts going up dramatically, it'll cut a lot in the end. That's a really
bad outcome if it gets to that point. But I think they're going to move slowly, gradually and reluctantly. And when they move, if it's because the global economy is going into a deep recession, I think it will have to then start moving quickly to bring interest rates down. Unfortunately, it's unlikely to immediately be able to offset the nature of the problem, which is bad tariffs. And one thing people are not talking about is developing countries are likely
to be experience and seeing a financial crisis. Many of the poorest countries in the world are getting the highest earths from the United States, and that could exacerbate the international composition of what's going on.
That's the last thing we want to say this morning, that's for sure. Eric, appreciate you jumping on this morning. Thank you, sir. The Boston Fed president, the former Boston Fed president there, Eric Rosengrant