Eric Rosengren @EricSRosengren

Countries that have experimented with political "consultation" on monetary policy have experienced prolonged periods of inflation. The most recent example is Turkey, whose inflation rate is currently 68 percent - the result of politics driving Turkey's monetary policy decisions.

One topic almost all economists agree on, The policies that Arthur Burns, chair of the Fed during the Nixon administration, followed to "consult" with the president were a disaster - leading to prolonged period of inflation. I hope today's WSJ article on the Fed are not serious.

Consumption grew 2.5 percent and investment 3.2 percent. Federal defense spending decreased 0.6 and inventories fell, neither of which is likely to continue. Final sales (Removes inventory swings) was 2.0 percent. GDP (1.6) is weaker than last quarter but is not that weak.

Former Boston Fed President Eric Rosengren: Expect the core PCE index to continue trending downward cnb.cx/4b5EwJX

2 The Fed objective is for PCE not CPI, but understanding why they are different is relevant for policy. Most of the difference is related to CPI shelter which has been more persistent than many expected. However, in a more normal economy, shelter inflation should gradually fall

1 I have attached some comments from an earlier cnbc interview. The main point is markets and the fed should be more concerned with trend changes than data points. While the trend for core pce is still down the trend in cpi has flattened. cnbc.com/video/2024/03/…

Disappointing CPI. While goods prices are declining transportation and shelter components remain quite high. The differences between CPI and PCE mean that there is a declining core PCE while core CPI is leveling off at too high a level. Shelter gets larger weight in cpi

ECI, a better measure than average hourly earnings of wages and salaries is also showing gradual declines to levels more consistent with 2 percent inflation. Not sure why the Fed would not still gradually reduce interest rates barring big surprises in inflation reports.

Strong jobs report. Continued strong growth in payroll but low-skilled jobs no longer need to pay outsized wages to get employees in construction, retail, or leisure and hospitality. As the chart shows, continued gradual decrease in average hourly earnings.

4 While the administration has focused on photo ops with chip manufacturers - They should be highlighting that in part their policies are leading to significant offset to the high rates and commercial real estate slowdown. It also bodes well for future manufacturing employment.

3 As an example see the construction boom in manufacturing. While on-shoring and AI boom a factor, the real boost is focused on the period where infrastructure legislation would be starting to have an impact. A construction slowdown was avoided by fiscal actions.

2 Answr Jobs Act, Inflation Reduction Act and Chips Act have provided huge fiscal incentive for construction. y/y from January manufacturing construction is up 36.5 percent, highway construction is up 22 percent, power construction is up 16.2 percent while commercial up only 3.2

Why is construction employment so strong? Is this the reason for the robust US economy? With rates high, CRE troubled, and homebuyers facing higher rates, why are construction jobs going so strong - typically construction employment leads a slowing economy. Answer next post.

Fed participants upgraded the real GDP forecast. For 2025 expected real GDP went from 1.4 to 2.1. Other forecasts were broadly similar with Dec, consistent with a soft landing and 75 BP reduction in each of the three years. Only gradual reductions with growth at potential.

Things to watch with FOMC SEP - Has the forecast changed? Relative to last SEP, expect new SEP to have 2024 real GDP to be somewhat higher, unemployment to be somewhat lower, PCE and core PCE in the low 2's. Forecast consistent with easing relatively soon.

The Fed dots have continued to have the long-term federal funds rate at 2.5. However, immigration has increased, AI and machine learning have raised many expectations of productivity, and federal debt continues to grow. While I expect this dot to rise, why has it taken so long?

NYCB continues to struggle. Very difficult to do a capital raise when the value of the CRE portfolio would be very difficult to ascertain given the well documented problems with rent controlled apartments in NYC and offices, and could change dramatically after an exam.

Fed communication has been too focused on data dependence. It makes the markets unduly focused on small changes of high frequency high volatility data that would not impact an economic forecast of the path of the economy. Instead, the communication should be forecast focused.

The March meeting includes the Fed forecast. Will Fed members significantly raise 2024 real GDP? Does that cause a reassessment of what interest rate is needed in the long-run (r*)? The economy continues to be much stronger than almost all SEP forecasts over the past year.

Retail sales was weak, though seasonals and cold weather makes it somewhat quirky, it still is consistent with weaker growth than the last two quarters for real GDP. Likely softer real economic data and continued progress on inflation makes the first cut in May still likely.