HARTFORD, CT — The economic outlook for 2020 is pretty rosy, according to Federal Reserve Bank of Boston President and CEO Eric Rosengren.
“You don’t normally invite an economist onto the program to be the optimist in the group, but actually the economy is doing quite well,” Rosengren told the over 400 people who attended the Connecticut Business and Industry Association’s “Economic Summit + Outlook 2020.”
He said the challenge with the economy doing so well and unemployment so low is finding the workers to do the job.
“We haven’t had an unemployment rates this low with monetary and interest rates this low for quite some time,” Rosengren said.
He said there is a risk that inflation could pick up faster in 2020 than the Federal Reserve anticipates. However, even with a tight labor market inflationary pressures have not emerged yet, but it’s something the fed is watching closely.
Rosengren said that’s because the feds have fewer tools at their disposal than normal.
“In a normal recession, we drop the rate by 4 or 5 percent. It’s hard to reduce 1.55 percent by 4 or 5 percent,” he said.
The central bank has not had much experience with low unemployment rates and low interest rates so it’s hard for them to predict an outcome.
He said there still are trade concerns, “but it should be a pretty good year overall.”
CBIA President and CEO Joe Brennan asked Rosengren if the trade agreement with China is finalized in the first quarter what is the likelihood that inflation will accelerate?
Rosengren said it’s just the first phase of the agreement and he doesn’t believe “by itself has really eliminated the problem with trade concerns.”
At the same time “we haven’t seen inflation pick up dramatically,” Rosengren said.
He said what he’s more worried about is business uncertainty.
He said consumption has been really strong, personal income has been strong, and the labor markets have been tight.
“What’s been much weaker is business fixed-investment,” Rosengren said. “And that’s in part about uncertainty around the trade agreement.”
On an issue closer to home for Connecticut, Rosengren was asked about the impact of increasing the minimum wage.
Connecticut’s minimum wage went up to $11 an hour in October 2019. The next increase will be up to $12 in September.
“In general, in a tight labor market the costs of that aren’t all that high. Because in many places the minimum wage is not actually a constraint on the wages they’re actually paying,” Rosengren said. “As long as that’s true it doesn’t have a big impact.”
Rosengren said when he talks to business leaders in Connecticut they tend to be “more negative than the economic data.”
He said Connecticut is just a tad above the national unemployment rate, which is at a 50 year low. He said the only difference is the lack of population growth and the small cities have higher unemployment rates than the state average.
“So it becomes very important to think about workforce development,” he said. “If you’re not getting people to come to Connecticut then what you have to do is encourage people who are currently not working to get back into the labor force.”
Brennan said the talk in Connecticut is always about the next recession and “he never used that word.”
“He doesn’t seem to be worried about any major downside risk over the next 12 months, which I thought was positive,” Brennan said.
Will the 2020 presidential election have an impact on monetary policy at the Federal Reserve?
Rosengren said they don’t spend a lot of time talking about politics.
He said at the Federal Open Markets Committee they don’t talk about it at all.
What they consider is the uncertainty that occurs around election years.
“If there’s much greater business uncertainty, particularly if they’re two very different choices as we get into the end of the year, then you do worry that organizations are going to hold off investment decisions until they hear what the outcome is going to be,” Rosengren said.