Fed's Rosengren: Now Is The Time To Prepare For The Next Recession

Thanks to the Trump fiscal stimulus, the economy may be decoupling from the rest of the world (at the cost of what the CBO described as a "catastrophic" debt load in the not too distant future) and growing at a torrid pace, at least until the fiscal stimulus fades, but according to at least one Fed president, now is the time to start preparing for the next recession.

Speaking at the Peterson Institute for International Economics in Washington, Boston Fed president Eric Rosengren said that fiscal, regulatory and monetary policy makers should take a variety of actions to make periods of high unemployment less likely. In his prepared remarks, he said that high unemployment periods disproportionately affect minorities, people with lower education levels and children.

Specifically addressing the next economic downturn, Rosengren said that In the U.S., state and local government financing “should be designed to buffer the economy during recessions." Quoted by Bloomberg, Rosengren said that such steps could include reducing the reliance on pro-cyclical revenue sources, shoring up pension liabilities and increasing “rainy-day funds” during economic upturns.

He also said that the Fed should increase the counter-cyclical capital buffer required for large banks to "address the incentive that banks will have to pull back on lending to shrink assets in a future economic downturn" and that the Fed should also consider "more flexibility with the inflation target" in order to give the central bank more room to lower interest rates during the next recession.

This goes back to the age old argument whether the Fed will overheat the economy, and hike too high just so it can cut enough to stem the next recession. Rosengren's view: "I think the policy path that will increase the probability of a longer recession-free period is the path where the economy does not run above capacity and thus, fall far below the sustainable unemployment rate."

Then, during the Q&A he made the following comments:

  • *ROSENGREN: THERE ARE SOME REAL BENEFITS TO MOVING GRADUALLY
  • *ROSENGREN: MUST WATCH IF INFLATION PICKING UP MORE THAN THOUGHT
  • *ROSENGREN: HAVE NOT SEE WAGES GO UP VERY RAPIDLY YET
  • *ROSENGREN: CAN TAKE BIT MORE RISK IF EXPECTATIONS WELL ANCHORED

This may well be the warning shot that the Fed's 2018 (and 2019) dots are about to come crashing down, as the recent forecast of 2 more rates hikes in 2018 is slowly but surely shifted to 1 or even 0. Keep in mind, the market is now only expecting a grand total of 2-3 more rate hikes before the Fed calls it a day, and starts to truly prepare for the next recession.

Now if only stocks were to get the memo...

Comments

I Am Jack's Ma… boostedhorse Wed, 06/27/2018 - 13:33 Permalink

All I know is when I get on the subway its 40% Indians with backpacks.

What’s the sense of ‘new jobs’ if they are being filled by Indians and Mexicans as half of black Boston is home collecting right now and 10/12% of white/asian Boston can’t find work that pays anything approaching reasonable?

’the economy’ is a metric (an amalg. of a few metrics) , and the meta-metric is shit.  Its like basing your understanding of how good pitchers are purely on wins/losses.

On a long enough timeline, every fiat and every empire collapses....  we may be a decade away, or two, but its coming.

 

Let’s all have a drink...

In reply to by boostedhorse

vladiki Juggernaut x2 Wed, 06/27/2018 - 17:49 Permalink

Many see the business cycle as inevitable as the tides.  They're ready for the big downturn - which we'll get.  But downturns are not inevitable.  Everywhere and always, they follow a boom where credit has been extended by private banks faster than the economy can efficiently use it to produce greater wealth.  Banks make money from lending, strain constantly to lend more,  and the faster they lend from the smallest possible capital and deposit base, the more profitable they are - but the more dangerous they are.  When they pump construction/consumer credit into an economy faster than it can be efficiently employed we get inflation in goods, services, and assets, followed by a painful reset.  They're like the novice driver of a stick-shift auto, rough on the clutch, kangaroo-hopping the vehicle as they let it out too fast, then back, then out .......

We may need to take from banks the privilege of deciding what credit to extend ... substitute somewhat-accountable political risk for the current unaccountable private bank risk.  Whatever way we do it, they must be aggressively controlled, because they will not control themselves any more than my dog would control his food intake. 

But before we can have sensible controls we need to reverse Bernankenomic thinking ... the notion that (1) demand management is the key to control and (2) you can have endless Keynesian deficit funding.  What we need is to match credit expansion to the economy's response ... like a good driver on the clutch.  Difficult because there's a one to three year lag, but without that we're stuck in the up/down cycles. Nonsense like a 2% inflation target,must go out with the trash. The biggest nonsense is the Fed responding to "live data" as if there were no lag!   They then WORSEN the kangaroo-hopping. The banks are the first problem, the Fed the second, and govt's endless wish to spend more than it taxes is the third.

In reply to by Juggernaut x2

Theosebes Goodfellow natxlaw Wed, 06/27/2018 - 20:47 Permalink

So walk down that primrose path. Who really goes bankrupt if the dollar crashes?

Let me parse the question the another way. What does life look like in America if we allow the Federal Reserve, (which is neither federal nor a reserve), to go bankrupt. What if we kill the FRN and come out with a gold-backed new currency?

What does life beyond the Fed look like?

In reply to by natxlaw

shizzledizzle Wed, 06/27/2018 - 13:31 Permalink

"HAVE NOT SEE WAGES GO UP VERY RAPIDLY YET" Oh please don't even pretend that that is a sincere concern cocksucker. On a side note, if inflation is picking up more rapidly than thought doesn't that throw moving gradually out the window? 

oddjob Wed, 06/27/2018 - 13:42 Permalink

Too bad we can't just fix interest rates to an honestly calculated rate of inflation sending these Fed ass hats packing. They can ride their stupid fucking contrived economic tricycle home.

small axe Wed, 06/27/2018 - 13:43 Permalink

Best way for Rosengren to prepare is to buy life insurance, pre-pay his funeral expenses, and beg forgiveness of all the "little people" the Fed has screwed over the years.

peopledontwanttruth Fantasy Free E… Wed, 06/27/2018 - 14:42 Permalink

The FED or should I say the dudes behind the curtain can call every recession and depression BECAUSE THEY CREATE THEM 

Duh 

Flood the market, corporations and everyone with easy cheap money aka Get everyone in your net!    Then contract the money supply and raise rates to foreclose on everyone and everything.

 Aka “Skin em and Fry em”!

In reply to by Fantasy Free E…

Vlad the Inhaler Wed, 06/27/2018 - 13:55 Permalink

Charlatans!  For wage growth you need productivity growth (all the low hanging fruit is gone and social media is rotting the rest) or serious inflation which the Fed's policy is to not allow.  Plywood shacks for the working class, bunkers for the asset holders, and bailouts for the lenders.

Consuelo Vlad the Inhaler Wed, 06/27/2018 - 15:57 Permalink

+1

 

Imagine for a moment, social media gone in an instant:

 

- Would the contractor cease his building projects?

- Would the framers, electricians, plumbers, etc., freeze in their tracks?

- Would the combine operator seize up & stall in the field?

- Would the machinist and his CNC router freeze & stare into space...?

About the only thing which would freeze is the private data harvesting taking place 24/7 at these beehives of metrosexuality...

 

In reply to by Vlad the Inhaler

lizzoilz Wed, 06/27/2018 - 14:24 Permalink

Crazy market day. Crash coming.

 

Interesting. Hardly get any emails from shitwave aka Shepwave.com and then  this week comes and have been bombarded with short term winning trades. 

 

Karl Marxist Wed, 06/27/2018 - 15:02 Permalink

Well, John Williams on Greg Hunter said this morning we've been in a recession since the big bank bust of 2006-8. The criminal politicians care nothing about we, the people, and have startlingly so worked against real job creation, Dems and Pubs. When the banks collapse this time starting with Deutsche Bank, there will be no more bailouts. We must expect more quantitative easing of a bankrupt criminal system of fraud and corruption as witnessed, again, by another revelation of Wells Fargo cheating mom and pop business through contrived, fraudulent, punitive fees.

Karl Marxist Wed, 06/27/2018 - 15:06 Permalink

How bad do things have to get before the people, no matter political or religious affiliation, creed or color, rise up in understanding the birth - to - grave slavery since the creation of the Fed and, worse, having them instilled by Congress?!? This is communism. All the rhetoric I heard since birth about the communist threat warranting invasion of this country and that country are lies upon lies. Washington killed some folks.

moonmac Wed, 06/27/2018 - 15:55 Permalink

Millennials will finally get to know what it feels like to catch a falling knife and it might be literally considering the rapid increase in suicides.

nopat Wed, 06/27/2018 - 16:03 Permalink

Starts to prepare for the next recession?  Ok, sure, mathematically P(next_recession) increases as t(last_recession) increases.  His statements are a big fat nothingburger.  But this is the problem with people who have been working (defined very loosely here) in this industry only for a short while.  Exhibit 1: 1992-2001.

 

We've been here before.

spencer Wed, 06/27/2018 - 19:25 Permalink

I don't know what these stupid guys are thinking, but to me it looks like there will be no chance for them to react when the DOW flies through all supports and crashes on them and recession starts immediately afterwards. Judging from 2008 and 1987 it almost looks like RIGHT NOW. They are idiots to think this market can levitate like this with short term rates at 2% and rising. We might be weeks or even days from this crash. EXPECTATIONS WELL ANCHORED ??? Jesus Christ.

rex-lacrymarum Thu, 06/28/2018 - 09:04 Permalink

"I think the policy path that will increase the probability of a longer recession-free period is the path where the economy does not run above capacity and thus, fall far below the sustainable unemployment rate."

Utterly meaningless gobble-dee-gook.