A Fireside Chat on Current Economic Conditions

By Eric S. Rosengren

Wednesday, June 23, 2021

Virtual

National Association of Corporate Directors, New England chapter

Figures (pdf)

5 takeaways from Boston Fed President Eric Rosengren’s June 23, 2021, remarks

Takeaway: Vaccination rates have been better than expected in much of the U.S., and that’s led to a more rapid reopening of the economy than was forecast earlier this year.

Excerpt: “I think the most important message is that we really have a quite a robust recovery that is underway. The economy is opening up faster than we would have anticipated five or six months ago. Vaccination rates particularly in New England but throughout the country have occurred more rapidly than we anticipated. And as a result, businesses are reopening much more quickly.”
Takeaway: Forecasts of gross domestic product (GDP) have been significantly upgraded since the start of this year, with the median forecast of Federal Open Market Committee members at 7% growth for 2021. That is unusually high for a U.S. recovery.

Excerpt: “Seven percent is … more like a number that you would expect from an emerging market, not a developed country like the United States, and really highlights how strong the economic growth is expected to be over the course of this year.”
Takeaway: Despite the positive signs, we still have quite a way to go before we reach full employment, given the most recent unemployment rate was 5.8%, substantially above the 4.5% FOMC participants project by the end of 2021. One reason for that is a slower recovery in public-facing services, including tourism, hospitality, restaurants, and retail.

Excerpt: “If you're working in a store, if you’re working a hotel, you're probably having a lot of contact with people, some of whom will be vaccinated, some of them will not, and you may just not be willing to take that much of a risk for a job that's not paying much more than minimum wage.”
Takeaway: Inflation is higher, but spikes in food and energy prices explain much of this, and those will moderate. Increased inflation can also be attributed to a variety of things that have happened over the last six months because of the unusual facets of coming out of a pandemic – including shortages in a variety of goods and services that we don’t normally experience during a recovery.

Excerpt: “Most Fed speakers have talked about expecting inflation to come back to 2%. That is my forecast as well, that I expect us to be slightly above 2%. … So, I think the Fed’s expectation, that most of the price movement that's occurring this year is not sustained into next year, is actually a pretty common forecast.”
Takeaway: Low rates and a high degree of stimulus have been appropriate, but it is important over time to watch for conditions that potentially raise financial stability issues.

Excerpt: “Housing prices [are] something worth closely monitoring. If we continue to see housing appreciation like we've been seeing, I think over time we'd have to take a hard look to see whether we're getting some spillovers from some of the monetary policy accommodation that we're having and think about ways to mitigate that.”