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Boston Fed Pres.: Market fully understands we’re not raising rates for several years

Boston Federal Reserve President Eric Rosengren talks to Yahoo Finance's Brian Cheung about the future of Fed policy

Video Transcript

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ADAM SHAPIRO: Markets here "On the Move." S&P 500 essentially flat right now. The Dow is off by about 50 points. NASDAQ has fallen just a bit, but still positive, up about 37 points. Nothing breaks the ice on a first date than talking about the Fed's inflation target or maximum employment, right, Brian Cheung? You spoke with Eric Rosengren. What did he have to say?

BRIAN CHEUNG: Well, speak for yourself, Adam. I think inflation is extremely exciting. But yes, as you mentioned, I did speak with Boston Fed President Eric Rosengren this morning. Had a chance to talk about his economic outlook. What's notable about the Boston Fed chief, is that he has a more pessimistic outlook than his other colleagues with regards to what the economy might look like in this recovery.

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One example being, he doesn't see that case for a 5%, 5.5% unemployment rate by the end of 2021, as the median member of the Federal Open Market Committee does. But he does say regardless, interest rates will remain low for a long time. Here's what he had to say this morning.

ERIC ROSENGREN: I think the market fully understands that we're not raising interest rates from the 0 to 25 basis points that the federal funds is currently trading in for several years. And that's consistent with the forecasts that came out of the summary of economic projections. It's also very consistent with the guidance that we provided. So exactly how we measure it when we're so far away from where we want to be, I think is a secondary concern to just trying to get the economy moving more quickly.

BRIAN CHEUNG: [INAUDIBLE] years is the main key word that President Rosengren really used there. And he was saying that the markets are pretty well aware of what the Fed is trying to do here. But he did express some concern that, yes indeed, it is hard to communicate the Federal Reserve's intention to moderately overshoot its 2% target. We realized that was going to be a problem when we had Charlie Evans from the Chicago Fed earlier this week, jumbling markets up by saying it's possible the Fed could raise interest rates before that time.

But it is notable that the framework does allow for that. President Rosengren saying in our interview that as well. That if financial imbalances do come up, things like financial risks or stability problems, that the Fed could indeed, raise interest rates. But definitely not the case for right now was his main message.

ADAM SHAPIRO: Brian, I know it's the second round of testimony by Jay Powell, as well as Secretary of the Treasury Mnuchin before senate banking today. Any update? Have they said anything we didn't hear the other day?

BRIAN CHEUNG: Well, Adam, it's actually the third day of testimony here. And yes, as you would expect, after multiple hours on both Tuesday in addition to Wednesday, nothing particularly crazy new coming from his testimony to the Senate Banking Committee. That's ongoing right now. But Chairman Powell saying that, quote, "there is a time coming when we're going to need to get back on a sustainable fiscal path," end quote, related to the US debt that's been accumulated in the middle of this crisis.

But he's been very adamant in saying that we should not fear spending right now. That now is not the time, in the middle of a pandemic, to be concerned about spending. So yes, we spent over $2 trillion on that CARES Act bill back in March. That's definitely something that's going to add to the federal debt. But that if we don't try to do something further, if we don't have further fiscal support, as Fed speakers have called for in recent weeks--

--that the ultimate damage the economy could be far worse than whatever the consequences of higher federal debt or deficit would be. So something that's definitely in view as the Senate, who he's speaking to, tries to continue to work with the House Democrats, in addition to the White House, on trying to get another package, if that is indeed, in the pipeline.

ADAM SHAPIRO: And that hearing still going on.