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Welcome to foxbusiness.com.
-- right -- we continue now our interview with Boston fed president Eric -- -- a voting member of the Fed's policy committee and -- -- thanks for staying with -- today.
On Fox Business and foxbusiness.com.
Let's go back to the September.
FOMC meeting are voting member and some of your colleagues have described that that decision.
Continue quantitative easing the bond purchases.
At the current rate 85 billion dollars a month.
Some have described that as -- that it was a close call.
It was a close call for you.
It was not as close to call for me as it was -- markers.
For several reasons for one the incoming data was not coming in as strongly as I hope.
Both components of GDP didn't look like they -- going to be coming in that much stronger than 2% for the third quarter.
Labor market statistics were coming in -- strong as I had -- Also we've had a big increase in interest rates.
Higher interest rates mean some more concerned about whether the interest since the -- we'll continue to provide the stimulus to the economy that they.
Up to now.
And finally there was a concern about what was going to happen with fiscal policy.
At the time of the meeting that was a risk unfortunately now it's become an outcome.
After the meeting we also heard some discussions about Fed's credibility.
You know that we had gotten lots of hints suggestions.
No promises I know put aside from you -- not from.
Chairman Bernanke or from anybody that the Fed could start to ease as early as the September meeting.
And when that didn't happen.
So that it really surprised the markets.
Has the Fed now got a credibility problem.
So we should do what's right for the economy not try to fulfill expectations.
Nonetheless we want to communicate clearly.
I think the chairman as well as other for the reserve speakers made very clear that data is an important determinant of whether or not we would.
Consider reducing the amount of purchases.
As I -- the data didn't -- in -- strongly as I have hope.
So I think you have to look at the caveats not just the headline.
And unfortunately I think maybe too many people focused on the headline -- we're all hard of hearing but -- -- an -- -- -- street.
Could the Fed do anything.
More to improve its communication.
For example we heard governor -- say just last week that perhaps maybe.
-- -- for the markets some specific metrics for when it might start to taper for every tenth of a percentage point decline in the unemployment rate.
You promise to reduce quantitative easing bond purchases by a certain amount what about that kind of -- So there advantages of that kind of program it's certainly reduces the uncertainty.
Provides clarity the Wall Street so that it may result less volatility.
The challenge to that kind of approach.
Would be for example how do you factor in the risk of a government shutdown.
So you don't care just about the outcomes that have occurred today.
You care about what you think's going to be happening over the next several months.
So if you thought that a fiscal shutdown was a real risk and that you wouldn't want to be removing accommodation right before fiscal policy.
It's going to send a shock to the economy.
Than having a rule based approach might not be as effective so I think it depends what the nature of the economy is where you think the sharks are going to occur.
Whether that kind of rules based approach is actually effective.
I think in the current environment where there's a lot of uncertainty about what fiscal policy will be over the next couple weeks.
I think that probably would be the approach I would take at this particular.
Point you also mentioned in here -- remarks here and Burlington.
You're concerned that the unemployment rate itself is not a reliable indicator of the health of the labor market we've heard that from some of -- Colleagues at the Fed.
In particular because of this for example the labor force participation rate fewer fewer and fewer people participating.
In the labor force so then.
Don't pays much attention to the headline unemployment rate as as you go forward.
How do you look at the data and given given them.
They have their weaknesses and concerns you have about the unemployment rate itself.
So -- only had to -- wonderful.
To focus on labor market still probably would be the unemployment rate.
But as you've highlighted there been some challenges.
When his labor force participation rate has come down.
Some of that's because of demographics but some of that is because we've had a very weak economy.
So the reason that the unemployment rate comes down as as people pulling out of the workforce that's not the way we want to get to improvement -- -- We want is people are actually hired by firms.
And that payroll employment actually improves.
That'll bring people back into the workforce and that would all be positive unfortunate payroll employment over the last three months has been under a 150000.
On average over the last three months that's slower than what we were getting earlier in the year it's slower than I'd like to see.
Does the does the model that the -- laid out in June however.
Do you still agree with that that that.
There could be tapering let's put aside now government shut down and debt ceiling tonight but just -- done in the economy performance of the economy itself.
That that it still stands that the Fed if the data comes in right and strong and strong enough for you that you could start to taper later this year.
And that and that that you could wrap up the program by the time the unemployment rate.
Hit 7% sometime next year if this if the unemployment rate itself -- suspect.
Does that models that plans to work.
Well the data were to improve -- labor markets -- to -- we receive more payroll employment growth.
If the fourth quarter GDP looked like it was going to be a much stronger number be an environment where we should be thinking about reducing the amount of accommodation that we.
I think that's becoming less likely as a result of some of the events of the last week.
But that would be a good outcome it's not that we want to have this degree of accommodation that's that the economy needs it given the way that that has -- coming.
And as you know that the the unemployment numbers calculated from a survey households.
Keep the payrolls survey is establishments and and they tell -- the government.
How much they're hiring every month -- you've said in the past that.
About 200000 jobs a month might be a good that would be of a pretty.
It decent enough number for you to start to perhaps considering.
Tapering QB does that does that number still good in your mind or or.
Are you looking.
-- not a tie it to anyone verbal.
But in an environment where we were getting 200000 jobs were are getting much stronger GDP growth would be an environment where we should be removing accommodation.
What did you think about some of the data we've -- the last couple days the ADP jobs report this morning came -- I think 150000.
That the private sector survey from the payroll company.
-- we got some relatively strong.
-- numbers from the PMI manufacturing index.
Mixed bag right now and not that those numbers don't give us give you enough clarity.
On the state of the.
Economy at this point one I think it is a mixed bag if you look at all the data that's coming.
Most people are not expecting the third quarter GDP to be much better than 2% most of workouts for under -- percent.
So I think there's still question mark about how fast the economy is going to be growing and most -- that it doesn't reflect the events of the last week.
Washington president -- -- thanks for joining us for some additional questions here on foxbusiness.com.
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