Boston Fed president: We’re encouraging firms to take on more debt
Boston Fed president: We’re encouraging firms to take on more debt Boston Fed president: We’re encouraging firms to take on more debtBoston Federal Reserve Bank president, Eric rosengren, is one of the three two sensors on the Federal Reserve against that decision. Early to wait to cut interest rates in a statement kids are already tight at Reliance is here now with an exclusive interview with President rosengren. His first interview since voting no on that re-cut on Wednesday, Edward and Charles appreciate you being here. Thank you. That’S the first question. Obviously why why did you decide? This is the second time you’ve dissented on a rate cut in into meetings, so why this time so I’ll start with where the economic conditions are, the unemployment rate is at 3.7 % low unemployment rate roughly as low as we’ve been over the last 40 or 50 Years so labor markets are quite tight. We look at inflation. Core CPI has been going up if you look at Dallas Tremaine, which is a way to take out outlier. That’S right. At 2 %, inflation Target is 2 %, so we’ve been a little soft Encore. Cppc E4: pretty clothes store 2 % inflation Target. So we have pretty good outcomes right now and then the question is what’s likely to happen forward and overall, most forecasters expect that to continue for the end-of-the-year they’re, expecting the unemployment rate to go down a little bit for inflation to go up a little bit. Those are economic conditions where we don’t need additional accommodation and, finally, with each level of accommodation, we’re now at a very accommodative monetary policy already. So we have a federal funds rate, which is a short-term rate that the Federal Reserve focus is on and it’s below, 2 %, which is our inflation Target, salsa below 2.5 %, which is where we think the federal funds rate all to be in the longer run. Of more accommodation in your mind, so the cost is financial stability, and let me explain that a little bit so if it was Costless the lower interest rates, we should lower interest rates to zero. How does it become costly? Well, when we change the price of credit, we’re also changing the quantity of credit, and what that means is we’re encouraging firms to take on more debt and leverage themselves. We’Re also encouraging house to take on more debt and leverage themselves in the near-term. There’S probably not much risk to that, but whenever we do have a recession, the concern is that people and firms will be overextended and the recession will be worse, so sometimes taken. Accommodation now has calls that only get reflected when we actually have an economic downturn. How does the global slowdown then come into this, because our interest rates are so much higher than a lot of the countries in the G7? Even Apple, slow down is important, but we’re very different than most other countries. So if you look at Europe, Europe has a much higher average unemployment rate in the United States. Does they don’t have an unemployment rate around 3.7 %, Japan to is had much lower PlayStation and so their economy hasn’t recovered? The way our economy has when we think about the importance of exchange rates, only about 11 % of our economy is exports, so the main driver of our economy is consumption, consumption, 70 % of the economy, consumers actually pretty confident and spending pretty aggressively. So how do you spark that, then, if we don’t have a competition, so the Federal Reserve, not responsible for segments of the economy, is responsible for the entire economy, so GDP, a measure of the growth of the overall economy? Last quarter grew right. Around 2 %, most forecasters expected to continue to grow around 2 %. That doesn’t seem really strong, but the Federal Reserve Bank of Boston zestimate, as it should be around 1 and 3/4, would be what the potential is for the economy, so a 2 % that strong enough to bring the unemployment rate down further. So we shouldn’t be targeting Industries, we shouldn’t be targeting just manufacturing. We should care if the economy has enough stimulus that we’re going to continue to have tight labor market Sanam play near 2 %. That’S actually what the objective function of the Federal Reserve is. The volatility in the markets are the swings that we’ve seen over the past. I guess what for weeks now, not really this week, but you see that what do you have that factor in to what you’re doing and our stocks inflated? Are they so they’re clearly risks that we have to take into account, so you highlighted some of them. The trade concerns and the tariffs are definitely a concern for tickly. If your manufacturer, who exports certainly brexit, will oil prices in the attack in Saudi Arabia or all factors that we have to take into account, even when we take all that into account, the private forecasters come up with 2 % growth for the third quarter and fourth Quarter so what it says, those are shocks to the economy, but at least so far they haven’t been big enough to deter us from getting around 2 % growth, which is where we want to be and witness accommodation. Do you worry that the stocks are inflated where the risk assets are are so I do worry about the price of risky assets? It’S not really just stocks. So if you look at highly leveraged loans, the underwriting for those highly leveraged loans has gotten riskier and riskier, and so the more that we encourage corporations to take on.. How does a corporation that took on a lot of debt react when there is a recession? Drop? A lot of people, so you don’t want the corporate sector to be unduly leveraged and right now the corporate sector is quite leverage enough bullets in the air. We are there plenty of tools of the Fed. So, unlike Europe in Japan, we still have some room on our short-term interest rates, so we’re at 1 and 3/4 to 2 %. Now so there’s a little bit of space before we hit zero long term rates are still well above zero on where they are and in your open Japan. So we have room to buy Securities if we need to, and we can also use, what’s called forward guidance. So just for the next meetings. So if you look at the financial pricing they’re expecting that is quite possible that we might, in my own view, unless the economic conditions changed. I don’t think that would be warranted appreciate I’m here we will throw it back to you. Charles you heard there might not be warranted another accommodation. The market is looking at, possibly some of that, but still strong growth, very, very persuasive argument for more on this interview with the Boston fed president to go to foxbusiness.com Boston Federal Reserve president Eric Rosengren talks to FOX Business’ Edward Lawrence about why he disagreed with the Fed’s 0.25 rate cut announced on Wednesday.
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