Federal Reserve Bank of Boston's President and CEO Eric S. Rosengren
Keith Bedford | Reuters
Boston Federal Reserve President Eric Rosengren manages a clear pressure to cut interest rates, CNBC said in an interview Friday that the central bank can afford to be patient as long as the economy stays.
Speaking only 12 days before the Fed is expected to mitigate monetary policy, he said he is aware of uncertainties and disadvantages of risks but does not believe they are strong enough to justify the first rate decline since the end of 2008 during the financial crisis.
"Considering that the economy is quite strong, considering that I believe that inflation will be very close to 2% and given that the growth in the economy is satisfactory, I think it is an environment where you do not have to Do a lot of action, "he told CNBC's Sara Eisen during an interview with Closing Bell.
"If the economy changes, if the trading situation changes dramatically, if we start to be surprised by how slow China or Europe is, then it is something we should definitely react to. But I think we should wait until we actually see the evidence that this happens, "Rosengren added.
That position puts him on the opposite side of Fed chairman Jerome Powell, as well as several other political decision makers who seem inclined to approve at least one quartz cut at the federal opening on July 30, the Market Committee meeting. The markets have completely priced at least 25 points, with a 41
Rosengren joins the Kansas City Fed President Esther George as the only two FOMC voters who have publicly said they do not see the need for a reduction, at least not yet.
Those who prefer a reduction cite global weakness, the effects of customs, test guilty debt cap negotiations and weak inflation among their concerns. But Rosengren said he was looking for concrete evidence of a slowdown, "and so far I don't see it."
"And you're not only worried about how today's data comes in. You have to think about how data will go forward. But I would say that most of the news we've got, at least in the last month, has been pretty good, "he added.
"Insurance" may be expensive
Market participants and some Fed officials, especially St. Louis Fed President James Bullard, have cited the need for an "insurance click" to act as a buffer against potential weakness. Such a move would also offset the December rise, which has been heavily criticized by President Donald Trump, who took some more shots against the Fed in a series of tweets on Friday.
Rosengren said such an insurance business comes with costs, and can be particularly risky considering how high the stock market has risen and the rising levels of corporate debt.
"It's not without charge to take out insurance," he said. "You pay a premium for the insurance. And one of the ways you think about that cost is what you do for financial stability."
Approval of an insurance cut would come at a time when unemployment is close to 50 years, the economy was 3.1% in the first quarter and is expected to see a 2% second quarter profit and latest resale and manufacturing data, at least in Philadelphia and The New York Fed districts were significantly better than expected.
Housing continues to be a draw and there is concern over corporate profits. In addition, New York Fed's resource probability indicator, which uses the spread of government bond rates as a benchmark, indicates a 33% chance over the next 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 terrorist attacks of September 11, 2001, the collapse of the Long Term Capital Management 1998 hedge fund and the black Monday stock market crash of 1987 among them.
He admitted that the economy has slowed down from its 2.9% rate in 2018, but said it is not at a point where Fed residents are needed.
"The economy is actually pretty – quite reasonable at this stage," he said. So, if it were to change, I would be easy to light at that time, but I don't want to relieve if the economy does it well without it getting easier. "