But Boston Federal Reserve President Eric Rosengren says the economy remains strong — both in the state and nationally — and he doesn't think a recession is likely.
Rosengren joined WBUR's Morning Edition to share his insights.
What's your take on the country's economic strength right now?
Right now, the economy is doing pretty well. Our unemployment rate by historical standards is quite low and as a result, labor markets are pretty tight. We are seeing wages go up; they're going up slowly, but they are going up. The one surprise is we're not seeing very much inflation at all. Inflation's a little bit below the Federal Reserve's target of 2%, but it's basically a good outcome for the economy.
Steep new U.S. trade tariffs on Chinese exports to the U.S. took effect Friday. China is expected to retaliate with tariffs of its own. Some Wall Street economists are worried these moves could derail the U.S. boom, so to speak. What's your view?
I think we need to wait and see what kind of negotiation occurs. If it's only for a few weeks, it's not going to have much impact at all. If it starts to be a situation where we expect tariffs to be high for a long period of time, it does start to disrupt trade patterns. You start having businesses think differently about whether they want to have operations in China. That isn't costless. They have to actually make moves.
In the meantime, people are going to be paying more for the goods and services that they get that come out of China. And so the longer this goes on, the more uncertain it becomes for retailers. That gets at both the pricing and how much they actually order. They don't want to be stuck with a big inventory of things that don't sell because of the tariffs.
The much-watched (UCLA) Anderson Forecast on the economy a few weeks ago said there is a "very real risk" the national economy will skid into recession late next year 2020. Are you concerned about that? What's the likelihood?
My own expectation is that we probably will not have a recession. The economy [will grow] more slowly over the next two years, more than likely, so the risk is definitely elevated. But we currently have very stimulative fiscal policy. We have reasonably accommodative monetary policy. The one uncertainty is what happens on the trade situation.
I think that the U.S. economy is strong enough that it can withstand the trade issues that are coming up right now. I do think, though, that it would likely slow somewhat (if the dispute is not resolved). If you're growing around 2 to 2.5%, you don't want to slow a lot from that. So, a weakening from that stage would be enough that it would be noticeable to people.
As we know, President Trump has frequently weighed in on Fed policies and has openly called for the Federal Reserve to lower interest rates. He even recommended political allies Herman Cain and Stephen Moore to sit on the Federal Reserve Board, though both withdrew from consideration. Has that outside pressure from the White House presented a challenge for the Fed to stay non-political?
It's very important for the Fed to stay non-political. And I can assure you that when we are deciding policy, politics do not enter the room at all.
Let's talk about Massachusetts. The state has a robust economy. At this point, job numbers look strong. Development in the Boston Seaport area and Greater Boston are hoping to attract even more businesses. Is there any reason to think that this growth that we're enjoying here will slow down at any time in the future?
Well, it will slow down at some point. I would say my biggest concern is actually that we're not prepared for the success that Boston has recently had. What I mean by that is: Do we have the right kind of infrastructure for the kind of growth that we're seeing?
So, if your commutes get really long, if affordable housing becomes much more of a problem, that can start becoming an impediment to how attractive Boston becomes for firms locating here. One of the big benefits is we have a highly educated workforce. Our schools are quite good, quality of life is quite good. If that quality of life starts deteriorating because we don't invest in the infrastructure, that would become a problem.
Have you seen signs of that yet?
My commute's much longer, so yes!
If you look at prices for rental apartments, it has gotten quite expensive for somebody to live in downtown Boston. If you're living in the suburbs, your commutes have gotten much longer. So I think we need to continue to be thinking about how we have transportation networks that make it easier for people to get in and out of work and make sure that as the downtown area does very well, that all people can get in and out of Boston, including low-income workers who may not have the ability to pay for much higher real estate or much higher transportation costs.
You and other Boston economists started asking last year how the Fed could make its policy-making process more transparent. That research turned into the "Fed Listens" conferences, like the one that you'll be speaking at today. How does the "Fed Listens" bridge the gap between policymakers and the local businesses affected by them?
We haven't had a public discussion about how we think about monetary policy. We spend a lot of time thinking about what on average happens to the economy. But I think it's also important to understand how it affects low-income groups, different demographic groups, different ethnic groups and how they're seeing our policy, including how we communicate with the public at large. So I think it's very exciting that we're doing a more regular review, and that we're actually asking a broad swath of society to comment on that.
This segment aired on May 12, 2019.