The Fed: Bullish for Now

At this morning’s breakfast presentation in Boston, Federal Reserve Bank of Boston’s President & CEO Eric Rosengren painted a cautiously optimistic US economic picture for the short-term, while identifying known risks which might derail his thinking.

Speaking under the auspices of the National Association of Corporate Directors – New England, Rosengren predicted 2019 economic growth of 2%, 2% of inflation and a reasonably strong domestic economy.  He noted substantive risks which should be considered, including trade with China, Brexit and weakness in European banks and foreign markets.  He also noted that while the stock market has recovered from the fourth quarter of 2018, the debt market and particularly the ten year treasury has not recovered, showing institutional concern and hedging of risk against an economic downturn.

On the positive side, there is no overheating of the economy, inflation rate is within expectation, and economic growth (while down from 3% last year) is reasonable.  A tight employment market also is a positive.

In New England, our education and tech sectors are robust, but an aging local population and public policy against retaining foreign graduate students could be a drag on the regional economy.

Asked about whether continued growth in the current Federal deficit was sustainable, Rosengren advised that you cannot continue to accelerate national debt without advancing productivity, in the face of rising social costs, particularly if those expenditures are not reinvested in the infrastructure (which in turn could drive future growth).

Finally, a reporter from Bloomberg gamely tried for a scoop in asking whether he foresaw a further boost in the Federal discount rate during the balance of the year.  Rosengren obviously but deftly avoided an answer, noting that his view of appropriate policy is to be “patient” to see whether growth continues as anticipated and whether some of the risks he had noted actually arose.  He did state that if the economy continued on its current pace, further fiscal tightening might be on the table.

Absent from his presentation and subsequent questions from the audience:  any mention of wealth disparity in the United States and its possible relationship to fiscal policy.

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