Eric Rosengren, the president of the Boston Fed, isn’t positive the U.S. financial machine has hit a relaxed patch. Far from it. Consumer spending, specifically auto product sales, and housing counsel the commercial machine is rising above building.
In an interview with MarketWatch, Rosengren talked about the September jobs file may overstate the vulnerable spot inside the dwelling monetary gadget. Buyers could now not be involved regarding the slowdown inside the world financial machine. If that’s the case, then the labor market may tighten further, albeit often, he talked about. And with a view to be fine quality for the U.S. vital monetary establishment because of the rest additional quick and the Fed could want to hike costs far more fast.
On the regulatory facet, Rosengren thinks U.S. financial regulators have further work to do to stave off some other financial problem. He components to the U.K. for the reason that a that you can think of model. In 2013, an independent financial policy committee was set up at the Bank of England to guard against risk and protect the resilience of the U.K. financial system. The following is a transcript of an interview, edited lightly for clarity.
MarketWatch: Let’s start with your take on the September employment report.
Rosengren: The jobs report was weaker than I was hoping. In some respects, it validates what we decided in September, which is we wanted to see more evidence that the economy was doing well. That being said, it’s one report, and if you look at the Summary of Economic Projections — where we thought we would be at the end of the year — 13 of 17 people thought it would be appropriate to raise rates and when you look at the economic conditions that are consistent with that, it is 5% to 5.1% on the unemployment rate, which is right where we are still, and it is consistent with growth around 2%-2.5%. So while we did get a weak jobs report, I don’t think that, by itself, would prevent us to necessarily have the same conditions that we put down in the SEP, which the vast majority of people thought would be sufficient to start raising rates. Now if instead of getting what we thought was going to occur in the SEP, we instead get a series of data that are much weaker, and that this jobs report is signaling much weaker, then we obviously shouldn’t do anything. And so it does depend on how the additional data comes in.
MarketWatch: The last Fed policy statement said the risks to the outlook are balanced between the downside risks and the upside. Don’t you think the risks are now tilted to the downside?
Rosengren: In the statement, we did highlight concerns about the foreign sector and that was different language than what we had used before. That is the sector that is actually coming in weaker. I don’t think we necessarily were expecting it would have a broader effect on the U.S. domestic economy. If that turns out to be an incorrect assessment…
I agree that a downside risk is that the international sector swamps some of the strength that we’re seeing in the domestic economy, but consumption, auto sales, things like that have been reasonably strong, and so I think it is really this question of is the inherent strength that is in the domestic economy enough to offset some of these headwinds that we’re getting from the international sector. If the international sector ends up to be a much bigger headwind than we were expecting, than we’re obviously going to have to think differently about when it is appropriate to start raising rates.
MarketWatch: So the key going forward are reverberations on the domestic economy from overseas?
Rosengren: If firms and households get concerned that there is a global slowdown, they will start saving more, they won’t do the same kinds of investments they were going to do and we will see domestic data reflect that slowness and then we’ll have weak trade data and we’ll have a weak domestic economy. If instead households and firms aren’t all that worried about the international sector and they are seeing oil prices are down, personal incomes doing reasonably well, that prices aren’t going up all that quickly, then I am more confident that the labor market is going to continue to be reasonably strong, then you might not see anything in the domestic economy and that despite what is going on internationally we’ll see enough strength in the domestic economy that we’ll continue to have some further tightening in labor markets but at a very gradual pace which I think actually is exactly what we’d like to see – a little probing in the labor market, let the labor markets tighten up a little bit more. I don’t want to grow so rapidly that we end up at a much, much lower unemployment rate and have to tighten much more quickly.
MarketWatch: Are car sales actually a sign of strength. Isn’t it just another case of subprime lending?
Rosengren: One, it says the financing is available and, two, it does say that people are reasonably confident they think they will be able to pay off their car loans. And the car loans are a relatively low rates still, so if you’re worried that rates are going to go up and you have a very old car, this might be an appropriate time to buy one. Car sales are an important durable good for people to buy, and so I think it is actually a positive sign if they are willing to put down a fairly significant amount of money to actually buy a car. It is a sign that there is enough confidence that they are going to continue to be employed, they are going to be able to make the payments on their car.
If you look at the industries that were particularly lower relative to what we’ve seen, a lot of it was in the manufacturing and mining sectors. Those are the sectors that are going to be most affected by foreign trade — foreign trade was weak, we already knew foreign trade was weak- and oil prices are definitely down, so it is not surprising that people in occupations tied to the oil industry aren’t doing as well as if oil prices weren’t so low.