The Federal Reserve Bank of Boston’s President and CEO Eric S. Rosengren
Keith Bedford | Reuters
Boston Federal Reserve President Eric Rosengren is lining up against an apparent push to cut interest rates, telling CNBC in an interview Friday that the central bank can afford to be patient as long as the economy holds up.
Speaking just 12 days before the Fed is expected to ease monetary policy, Rosengren said he is aware of uncertainties and downside risks but doesn’t think they’re strong enough yet to warrant the first rate reduction since late 2008 during the financial crisis.
“So, given that the economy is quite strong, given that I do think that inflation is going to be very close to 2%, and given that the growth in the economy is satisfactory, I think that’s an environment where you don’t have to take a lot of action,” he told CNBC’s Sara Eisen during a “Closing Bell ” interview.
“Now, should the economy change, if the trade situation changes dramatically, if we start getting surprised by how slow China or Europe are, then that’s something we definitely should react to. But I think we should wait until we actually see the evidence that that’s happening,” Rosengren added.
That position seemingly puts him on the opposite side of Fed Chairman Jerome Powell as well as multiple other policymakers who appear inclined to approve at least a quarter-point cut at the July 30-31 Federal Open Market Committee meeting. Markets have completely priced in at least a 25 basis point reduction, with a 41% chance of a 50 basis point cut.
Rosengren joins Kansas City Fed President Esther George as the only two FOMC voters who have publicly stated they don’t see the need for a cut, at least not yet.
Those favoring a reduction cite global weakness, the impact from tariffs, testy debt ceiling negotiations and weak inflation among their concerns. But Rosengren said that he’s looking for concrete evidence of a slowdown, “and to date, I’m not seeing that.”
“And you don’t just worry about how the current data’s coming in. You do have to think about how the data will be going forward. But I would say most of the news that we’ve been getting, at least over the last month, has been pretty good,” he added.
‘Insurance’ cut could be costly
Market participants and some Fed officials, particularly St. Louis Fed President James Bullard, have cited the need for an “insurance” cut to serve as a buffer against potential weakness. Such a move also would offset the December rate increase, which has been criticized harshly by President Donald Trump, who took a few more shots against the Fed in a series of tweets Friday.
Rosengren said such an insurance move comes with costs, and might be particularly risky considering how high the stock market has soared and the surging levels of corporate debt.
“It’s not costless to take out insurance,” he said. “You pay a premium for the insurance. And one of the ways that you think about that cost is what you’re doing to financial stability.”
Approving an insurance cut would come at a time when the unemployment rate is near a 50-year low, the economy grew 3.1% in the first quarter and is projected to see a 2% gain in the second quarter, and recent data on retails sales and manufacturing, at least in the Philadelphia and New York Fed districts, was significantly better than expected.
Housing continues to be a drag, and there is concern about corporate earnings. Also, the New York Fed’s recession probability indicator, which uses the spread between government bond yields as a yardstick, is indicating a 33% chance in the coming 12 months, the most elevated since the financial crisis.
However, Rosengren pointed out that the only recent times the Fed has approved an insurance cut have come to combat unusual events — the Sept. 11, 2001 terror attacks, the collapse of the Long Term Capital Management hedge fund in 1998 and the Black Monday stock market crash in 1987 prominent among them.
He conceded that the economy has slowed down from its 2.9% pace in 2018, but said it is not at a point where Fed accommodation is needed.
“The economy is actually quite — quite reasonable at this stage,” he said. “So, if that were to change, I’d be happy to ease at that point, but I don’t want to ease if the economy is doing perfectly well without that easing.”