Boston Fed President Rosengren sees 1.7% GDP growth


First on CNBC: CNBC transcript: Boston Federal Reserve President Eric Rosengren speaks with CNBC‘s Steve Liesman today

WHEN: Today, October 4, 2019

WHERE: CNBC’s “Fast Money Halftime Report

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The following is the unofficial transcript of a FIRST ON CNBC interview with Boston Federal Reserve President Eric Rosengren and CNBC’s Steve Liesman on CNBC’s “Fast Money Halftime Report” (M-F 12PM – 1PM) today, October 4th. The following is a link to video of the interview on

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Boston Fed President Rosengren sees 1.7% GDP growth for the second half of 2019


SCOTT WAPNER: Eric, thanks so much. That’s Eric Chemi. Big interview coming up right now. Let’s get to Steve Liesman. He is live from the Boston Federal Reserve with a first on CNBC interview. That is the Boston Fed President Eric Rosengren. Steve?

STEVE LIESMAN: Scott, thanks very much. Yeah, we are inside the Boston Fed here with Eric Rosengren. President Rosengren, thanks for joining us.

ERIC ROSENGREN: Nice to be here with you.

STEVE LIESMAN: Job growth this morning coming out below expectations. The Street looking for 145,000. It came in 136,000. But the unemployment rate falling to 3.5%, a 50-year low. Give us your initial reaction to this job’s data this morning.

ERIC ROSENGREN: So, as you highlight, the unemployment rate is quite low at over 3%. Over the course of the summer it was at 3.7. So, the Household Survey was a little stronger than the Payroll Survey. I think you have to keep in mind exactly where we are in the cycle. So, we have a very low unemployment rate at this point.

We’re relatively close to 2% inflation. So, the kind of job growth that you would expect if you’re trying to keep the unemployment rate basically constant and inflation rate constant would be in the range of 90 to maybe 115,000.

So, we’re getting to the point where we’re getting the kind of employment growth I would expect in kind of a stable economy.  I think the bigger question whether it ends up being weaker from here and that depends, importantly, on what happens on the consumer side of the economy.

STEVE LIESMAN: When you look at the level of job growth, do you want to bring it down? Do you want it to be lower? Do you want the employment rate to be stable or higher? Why can’t we go lower on the unemployment rate?

ERIC ROSENGREN: So, there are a couple reasons why we get concerned with unemployment. So, the committee, as a whole, thinks that the median estimate for where unemployment rate would be over the longer-term would be 4.2%. So, 4.2, 3.5, we’re already pretty tight.

STEVE LIESMAN: Let’s be clear--

ERIC ROSENGREN: And the reason for that is two-fold. One is, in periods where the labor markets are quite tight, we expect over time that wages and prices will go up. So, core PCE has gone up from 1.5, 1.6, to 1.8. Core CPI has gone from 2 to 2.4, so we have seen some movement in prices. We also have to worry about financial stability. So, you press the economy too hard and you start finding different pockets of the economy starting to have more troubles than you expected.

STEVE LIESMAN: I was just going to interrupt before as a kind of informational note here that the committee has had a differing view on what the right level of unemployment is. It used to be above 6%. And we’re learning now, aren’t we, that we can operate this economy at a lower unemployment rate without inflation?

ERIC ROSENGREN: It’s definitely true that the estimate of what the unemployment rate would be in the long run has come down. That does move around for a variety of things. And it includes kind of what the demographics of the population are. So, different age in the population does make a difference. The amount of immigration, makes a difference. Population growth in general, makes a difference. Education, makes a difference. So, all these factors of things that go into thinking about tight can the labor market be before we start seeing wage and price pressures.

STEVE LIESMAN: Let’s talk about the broader macro economy. When you look at a number like this and look at where the job number is, but we had two key indicators this week—the ISM service indicator and manufacturing—both weakened from where they were certainly last year. What is your overall outlook for economic growth?

ERIC ROSENGREN: So, my overall view is it is going to be around potential for the second half of this year. So, the third and fourth quarter, my estimate of potential is around 1.7. That’s pretty consistent with what the private sector expects for the last two quarters of this year. I think that data that we have is weaker than it was before, but is actually pretty consistent with getting around to 1.7. If we start getting much lower than that, then that implies a rising unemployment rate and we would want to think about what is happening in the economy.

I would say that some of the data that we have gotten over this week is not a complete surprise. So, we know that tariffs are having an effect on the economy. We know that the manufacturing sector globally is being impacted by what is happening with trade. So, we would expect that exports and manufacturing would be weak and that’s exactly what we’re seeing.

The bigger question, I think, is does it spill over to areas not directly affected by trade concerns? And that would be, is the consumer still confident enough that they’re going out and spending? Up to now, we’ve had pretty good consumption. Wealth is still pretty good. Personal income is pretty good. So, there are a lot of factors that you would normally think dominant for the consumer that actually still are indicating that we should see strong consumption.

But, there is always the concern that some of the concerns that are occurring from trade and from some of the headlines that you just referenced, might start causing consumer confidence to ebb. And if that really does occur, then we have to think about whether the economy would slow down from here.

STEVE LIESMAN: There are -- people talk about the Fed and the trade war in the following way: that the Fed needs to deal with the effects of it, but shouldn’t enable it. Is that your idea?

ERIC ROSENGREN: So, we have to – we have a mandate. The mandate is tied to inflation and unemployment. So, if we don’t think we’re going to get maximum employment or if we think we’re going to miss our inflation target by a lot, then we should do something differently, regardless of what the source is. So, we don’t control fiscal policy. We don’t control what is happening globally. We should react to those things and try to make sure as best we can we keep the labor market and inflation on even keel.

STEVE LIESMAN: We talked about the job market. We talked about the job market trade war. What is your outlook for policy in context of all these things? The market seems primed right now for a rate cut. We came in before this interview, it was running at 80 or 85% probability of a rate cut this month. Do you think that is the right course?

ERIC ROSENGREN: I still have an open mind. We still have more data between now and when the meeting actually occurs. I’m going to be quite attentive to what is happening with anything that indicates the consumer is changing their view. We had an auto report that was reasonably strong. So, if we were really worried about the consumer getting very concerned, you wouldn’t have thought auto sales would be quite as strong as what we saw. So, we’ll have to see how the consumer is continuing to react. We’ll have to see what is happening on the price side, as well. So, I think there is still a little bit more data before the meeting.

I don’t think I should prejudge it at this point. We’ve already had two easings. Easings don’t have their impact immediately. Monetary policy currently is accommodative. So, in the longer run, we think that a Fed Funds rate around 2.5% would be the appropriate long run Federal Funds rate.

We’re now below 2% and Fed Funds has been trading around 1.9. That is quite a bit below where we think the Federal Funds rate should be in the long run. So, I think we need to monitor the economy. See if it looks like we’re on a stable course or whether it will be weaker than that.

STEVE LIESMAN: You’ve been a lone voice when it comes to the concerns about financial risk, when it comes to the rates being too low. What are those concerns and do you see reasons to be concerned right now about the level of financial risk created by low interest rates and the reach for yield and moving up the spectrum of risk by investors?

ERIC ROSENGREN: So, I do worry about the incentives that are created when you have low interest rates. Low interest rates in a recession doesn’t cause a lot of financial stability concerns because both households and firms are pulling back. And, so, you don’t have a lot of risk-taking. In fact, monetary policy is trying to encourage more risk-taking at that time. When you have an unemployment rate of 3.5%, when you have a stock price that is still very high, then that’s a situation where I don’t necessarily want to encourage households or firms to take on a lot more risk.

The household sector doesn’t look all that risky right now, but I would say the firm side does. That leverage is quite high at a wide variety of firms and industries. And corporation debt is quite high relative to what we’ve seen historically.

STEVE LIESMAN: You talked about this issue of co-worker space which is WeWork, the biggest player in that space. They just pulled back from an IPO. Are you a little more encouraged actually since you made that speech and what has been happening, are you still concerned what is happening in that industry?

ERIC ROSENGREN: So, I gave a speech at NYU that talked about the financial stability risks from this co-working space. And it’s really the idea you have long-term leases but providing short-term leases to individuals or small companies that whenever we do have an economic downturn might be some of the first people to be unemployed. And in that kind of situation, we should worry about whether that space should become more vacant more quickly than we have seen in the past.

So, I think we do need to think about the model itself. It’s not necessarily specific to an individual company. But really thinking broadly about what is the incentive of a landlord to provide a longer-term lease to somebody who frequently has bankruptcy remote structure, so that they could walk away from that lease. What are the times that will occur and what does that mean for the economy overall?

STEVE LIESMAN: Eric, just a quick thing here. The conference that you’re having is looking at something the Fed has to deal with. You have one tool, but one country with many different places that are, have different economic levels of activity and changes. How do you deal with that? Do you have -- change rates are up now for the whole country and yet, what you’re studying here, it shows, for example, urban centers are having a different outcome from rural places.

ERIC ROSENGREN: So, that is exactly what we are studying, is the experience in Boston, for example, is somewhat of a supercity. We have a lot of young people. They tend to be highly educated. Their incomes are growing quickly. But you get to rural New England and you get a very different experience and Upstate parts of Maine or Vermont.

And as a result, we’re seeing big disparities and outcomes. Monetary policy itself is not a particularly good tool. But I think we have to think about other ways that we make sure that we just don’t think about the economy overall, but we make sure some of these geographic disparities over time get reduced.

So, traditionally economists thought we would focus on individuals and job training and that people would move to where the jobs are. Increasingly, we’re seeing we need to think about to get the jobs to the people because the people don’t move as much as we would think.

STEVE LIESMAN: Eric Rosengren, President of the Boston Fed, thanks for joining us.


STEVE LIESMAN: Thanks for having us here inside the Fed.