Chapter 1: What is the main topic discussed in this episode?
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Eric Rosengren 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 suggest 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 2.7% is substantially above the 2% inflation target. It was 2.7 last month as well. And if you look at the PCE measure of inflation, it's been gradually rising. So the result is that the inflation news has not been such that you can have
a great deal of confidence that the Fed's going to get back to target, particularly as you know, they've missed their 2% target for almost five years. On the labor market side, there were only 50,000 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 50,000 jobs isn't that far out of the ordinary, given the slow growth in the labor force. The unemployment rate's at 4.4%. 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.
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Chapter 2: What insights does Eric Rosengren provide about the Federal Reserve's current challenges?
This just feels a little bit different. here in 2026, 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 Jay Powell's term ends in May.
And assuming that the administration comes up with someone to replace Jay and that person gets Senate confirmation, the administration's made clear that they're not going to appoint 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 of the year when there's a new Fed chair in place. 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 a new Fed chair, that rates actually decline, particularly if the administration's jawboning 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 Powell, ostensibly into Powell's handling of the renovations of the Fed building, given the Supreme Court arguments 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 Fenda independence and whether we should really start looking at this as the beginning of the end, particularly given the comments out of the three former Fed chiefs yesterday, their statement that they signed, the support today that we saw from monetary policy officials overseas, as well as executives like J.P. Morgan, CEO Jamie Dimon. Yeah, so Fed independence is critically important.
Normally, losing Fed independence is something that happens in third world countries, where either they're having trouble managing their 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'll 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.
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Chapter 3: How might recent economic data influence the Fed's decision-making?
So to the extent that various actions by the 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 it there. Always appreciate getting your comments here.
Eric Rosengren, of course, former president of the Federal Reserve Bank of Boston.
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