Rosengren Warns of Inflation Risks Despite Slightly Lower CPI Numbers

Eric Rosengren, a veteran of the Federal Reserve Bank of Boston with over four decades of experience in monetary policy and bank supervision, believes that the current inflation situation is not enough to convince Fed hawks to raise interest rates. According to him, even though the latest consumer price report shows a slight decrease in year-over-year numbers from 3.5% to 3.3%, it's still above the 2% target.

Rosengren thinks that some FOMC members might be willing to wait and see if inflation comes down on its own, but he disagrees. He would have tightened policy at the last meeting and believes that the Fed needs to take action sooner rather than later. Rosengren points out that even though prices have steadied in recent months, they're still under pressure due to a tight labor market and continued price pressures.

He also attributes the steady inflation rate to factors like oil prices, which are expected to remain high and volatile due to ongoing conflicts in the Middle East. Rosengren notes that the Fed faces a crucial question: how quickly can they get back to the 2% inflation target, and how confident are they that it will happen? He predicts that if the situation remains unchanged in September, there's a high probability that the Fed won't raise rates at all.

Rosengren also shares his thoughts on forward guidance, which has been a topic of controversy since new Fed Chair Kevin Warsh took over. Rosengren believes that Warsh is trying to shift the focus from providing clear guidance on future policy decisions to letting markets make their own assessments based on data. However, he argues that this approach might not be effective and could lead to confusion among investors.