Former Federal Reserve Bank of Boston President Eric Rosengren Talks Government Shutdown

Summary

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Bloomberg Talks: Former Federal Reserve Bank of Boston President Eric Rosengren on the Government Shutdown

Date: October 2, 2025
Guest: Eric Rosengren (Former Boston Fed President)
Main Theme:
Bloomberg sits down with Eric Rosengren to unpack the economic impact of an ongoing government shutdown, the complexities it creates for the Federal Reserve’s decision-making, how policymakers handle data uncertainty, and the broader risks for the US economy.

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Key Discussion Points and Insights

1. Reliance on Data During a Shutdown

(02:00 - 02:39)

• Government Data Disruption: Rosengren notes the Fed typically leans on official government data, but during a shutdown, that data may not be available, forcing greater reliance on alternative sources.
• Importance of Employment Reports: The Fed values the official Employment Situation Report over private reports, but "when there's a government shutdown, you have to rely on whatever data you can get your hands on." (Eric Rosengren, 02:16)
• Increased Use of Private Data: Reports like those from ADP, Challenger, and Revelio Labs are scrutinized more closely, but their messages can conflict.

2. Comparing Private and Government Data

(02:40 - 03:19)

• Private-sector data showed contradictory signals: ADP indicated job losses, Challenger and Revelio offered a rosier employment picture.
• Rosengren describes the scenario as “not optimal,” pointing out:
  • Consumption only grew 1.6% in the year's first half—roughly half the rate of late last year.
  • Consumer confidence is "weak," as reported by the Conference Board.
  • The government workforce facing uncertainty will likely curb spending even further.

Quote:
“We already know that consumption probably won’t be all that strong...there’s a good reason to believe that consumption is going to continue to be weak. Certainly, if there are both a shutdown and layoffs, government spending in the second half of the year is also going to be weak.”
— Eric Rosengren (03:27)

3. Policy Risks at a Fed “Turning Point”

(05:28 - 07:01)

• Government shutdowns weaken GDP and amplify uncertainty.
• The Fed faces a difficult policy environment:
  • Employment is likely to be weak, but inflation remains above target (core PCE at 2.9% and projected to end the year above 3%).
  • Tariffs are starting to influence final goods’ prices.
  • The Fed’s dual mandate (employment & inflation) is being “missed” on both counts, making trade-offs even tougher.

Quote:
“It means that GDP for that quarter is going to be weaker. And if you’re at a turning point, like possibly we are now, it runs the risk that we make a mistake.”
— Eric Rosengren (06:04)

• Making a bold interest rate move without solid data would be “pretty challenging.”

Quote:
“With the data only being the ADP report, it’s pretty challenging for the Fed to make a big move without better knowledge...the Fed will be pretty tentative at this next meeting.”
— Eric Rosengren (06:42)

4. Broader Economic Impact of Furloughs

(07:01 - 08:35)

• Furloughs risk broader economic ripples:
  • About 750,000 federal workers could be affected, with more at risk if contractor funding gets pulled.
  • Uncertainty drives cuts in consumption for both government workers and contractors.
  • This is "material" and raises recession risks:
    • “Given that the economy already was weak, I think it does risk, depending on how it’s handled, having a more severe outcome than would be desirable. So the risks of a recession definitely go up.”
      — Eric Rosengren (07:59)
• The lack of data due to a shutdown “could be a serious mistake to allow the shutdown to continue for a long period of time.”

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Notable Quotes & Memorable Moments

• On alternative data reliance:
  “When there’s a government shutdown, you have to rely on whatever data you can get your hands on.”
  — Eric Rosengren (02:16)

• On the weak state of the consumer:
  “We already know that consumption probably won’t be all that strong. And then we’re going into a shutdown where certainly government workers are not going to be interested in spending very much money because they don’t know when they’re going to get paid.”
  — Eric Rosengren (03:27)

• On policy uncertainty:
  “With the data only being the ADP report, it’s pretty challenging for the Fed to make a big move without better knowledge. So there’s greater uncertainty, but there’s uncertainty on both elements of the dual mandate.”
  — Eric Rosengren (06:42)

• On the risk of recession:
  “Given that the economy already was weak, I think it does risk, depending on how it’s handled, having a more severe outcome than would be desirable. So the risks of a recession definitely go up.”
  — Eric Rosengren (07:59)

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Timestamps for Important Segments

• 02:00 — Official data vs. private data during a shutdown
• 03:27 — Consumption and consumer confidence in the face of uncertainty
• 05:28 — What the Fed weighs at key turning points
• 06:42 — Fed caution without reliable employment data
• 07:30 — Material impact of mass furloughs and contractors; recession risk

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Summary

This episode offers a candid, high-level look at the real and immediate risks of a government shutdown as seen through the eyes of a former Fed policymaker. Rosengren emphasizes that data uncertainty materially complicates monetary policy just as the Fed is at a “turning point.” With consumption already softening, inflation too high, and labor uncertainties arising from government furloughs, the risk of recession is heightened if the shutdown prolongs. Rosengren advises caution, expecting the Fed to be tentative in the absence of clean data, and urges quick resolution to avoid compounding economic damage. The conversation retains a measured and analytical tone, highlighting the clashing realities policymakers face in such turbulent times.

Transcript

[A]

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[B]

Bloomberg Audio Studios Podcasts Radio News There are still some concerns here about the impact of trade policies, particularly when it comes to the agricultural sector. There have been multiple news reports over the last few minutes from Politico as well as the Wall Street Journal that the Trump administration is actually exploring a bailout of at least $10 billion for US farmers. This would ostensibly be to help support that drop off that we've seen from China buying a lot of our goods, primarily soybean and corn. And we should point out this is kind of reminiscent of what we saw during the first Trump term when he also instituted some trade policies that caused China to retrench and then basically had to create some subsidies to help our local farmers.

[C]

Right. Some precedents for this like you say coming from Trump administration, but as you say, the Wall Street Journal reporting that looking to use tariff revenue to fund that potentially $10 billion aid package, maybe to help the soybean producers will continue to follow that story. But as Romain mentioned, that government shutdown extending into a third day as Wall street and Washington watch for any signs of compromise coming from Congress, questions swirling right now about how this could impact the Fed's easing plans as another all important interest rate decision approaches later this month. Joining us now, pleased to say we have former president of the Federal Reserve bank of Boston, Eric Rosengren. Great to have you with us. And that is the question right when we think about that next Fed meeting, I would love to hear your perspective. As a former policymaker, how much did you rely on alternative sources of data, private reports for example, versus the official government data that would come out about the labor market.

[D]

So there tends to be a focus on official government data, though we certainly use data from private sources sources as well. So for example, the ADP report that came out yesterday, people would certainly look at it, but they put much more weight on the employment numbers coming out of the Employment Situation Report which comes out on Friday. In normal circumstances, but when there's a government shutdown, you have to rely on whatever data you can get your hands on. So I think we're in a period where more reliance on private data is going to be necessary until the shutdown is over.

[B]

Over.

[C]

And you look at the different pieces of private data that we are getting. You mentioned the ADP report that showed that private companies shed 32,000 jobs in September. You had interesting reports coming from Challenger today. You also had a separate report from a company called Revelio Labs, which I admit I'm not too familiar with, showing that the economy actually added jobs in September. So it feels like they're all telling different stories. And in your experience, I mean, how good of a picture can you throw together, cobbled together, of how the economy is actually doing from these different private sources? How does that typically compare to the official government data?

[D]

So it's certainly not optimal, particularly given that the US Economy in the first half of the year weakened relative to the second half of last year. So we already have consumption that grew in the first half of the year only by 1.6%. That was roughly half of what it was the second half of last year. We have government spending that's also being cut back. And it looks like the consumer is pretty weak. So a number of the conference board came out earlier this week. Consumer confidence was weak. So we already know that consumption probably won't be all that strong. And then we're going into a shutdown where certainly government workers are not going to be interested in spending very much money because they don't know when they're going to get paid. And on top of that, there's a threat that a number of the government workers, workers are also going to be laid off. So there's a good reason to believe that consumption is going to continue to be weak. Certainly, if there are both a shutdown and layoffs, government spending in the second half of the year is also going to be weak. So you already know that there's going to be a relatively weak economy and that more than likely labor markets are going to be weaker than we want. The problem for the Fed is that we're also seeing that inflation is going up. So the PC, which is what the Fed tends to focus on, particularly the core PCE was up a little bit, is that 2.9%. If you look at both private and the Fed forecasts, the expectation is that we'll end the year over 3%. That is higher than the Fed would like. It would like a 2% inflation rate. So it's still a difficult meeting for the Fed because it probably has a weaker employment report if we actually were to get one. And it also is a situation where the inflation data we've had to date on top of the fact that we know that the tariffs are beginning to flow through to final goods is environment in which it's missing both of its mandates and has to Trade off those two challenges.

[B]

I am curious about what the discussion ends up being. I know we're still a long way from the next Fed meeting. We still have like four weeks or so before we get there. But if you go into that meeting with the shutdown and when you were Boston Fed president, I think you went through at least two or three government shutdown, certainly the two that we had in 2018. And that was a time where, if I remember correctly, the Fed was raising rates and trying to make a decision about whether to continue to raise rates. So how much does the impact of a shutdown or the speculation about a shutdown affect the policy decision making?

[D]

Well, you know that it weakens the economy. It means that GDP for that quarter is going to be weaker. And if you're at a turning point, like possibly we are now, it runs the risk that we make a mistake. So let's say that you do a 25 basis point cut because the labor market's weak, even though inflation's a little bit too high. If this employment report would have indicated that payroll employment was declining substantially and unemployment was going up rapidly, that might be an environment where you'd be seriously considering 50 basis points. I think given that inflation's high, it's pretty. And with the data only being the ADP report, it's pretty challenging for the Fed to make a big move without better knowledge. So there's greater uncertainty, but there's uncertainty on both elements of the dual mandate. I think that the Fed will be pretty tentative at this next meeting. Yeah, we're in an environment where there's still a shutdown.

[B]

I am curious about how much federal employment actually affects. Affects our economy when we use this number of 750,000 folks being furloughed. And of course, we're now learning based on news reports that some of those jobs could be actually permanently reduced. I know that's still less than what, a quarter, I think, of the total federal workforce. But there has to be some sort of tentacles that come out of that that affects the broader economy. Is it material?

[D]

I think it is material. So certainly the federal workers are going to cut back on their consumption patterns, whether they're being. They don't know exactly who's going to be laid off, if anyone's going to be laid off. They don't know how long they're not going to be paid for. But it's not just the government workers. It's also all the government contractors and the private sector employees that now are not also going to be paid by the government, and some of those cutbacks presumably are for the public sector, but there also may be cutbacks in contracting to the private sector. So there's a reasonable chance that this is more extensive. And given that the economy already was weak, I think it does risk, depending on how it's handled, having a more severe outcome than would be desirable. So the risks of a recession definitely go up. When you have a shutdown, you have less information. And if the economy already was in a possible turning point, it could be a serious mistake stake to allow the shutdown to continue for a long period of time.

[B]

All right, Eric, really appreciate you taking time for us. That's Eric Rosengren, former Boston Fed president.

[A]

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[E]

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