Fed's Rosengren Sees Bank Completing Entire $600 Billion Stimulus Program
Federal Reserve Bank of Boston President Eric Rosengren said he expects the central bank to buy the entire $600 billion of Treasuries policy makers authorized Nov. 3 in a bid to reduce unemployment.
“Given my forecast, I fully anticipate we will purchase the entire amount,” Rosengren, 53, said today in an interview with Bloomberg News. “Certainly if the economy were to weaken substantially and further disinflation were to occur, we should take more action,” and officials could also make “adjustments” if the economy turned out to be much stronger than expected, he said.
Rosengren’s remarks extend a defense of the program by Fed officials against critics outside the central bank and some inside. Asked about the rise in 10-year Treasury yields over the last two weeks, Rosengren said that “ideally” the Fed would like to see rates stay low, “but we don’t control all the things that affect these markets,” such as investor expectations for fiscal deficits in the U.S. and abroad.
The Boston Fed estimates the renewed large-scale asset purchases will help reduce the U.S. jobless rate by an additional 0.5 percentage point over the next two years, equivalent to adding 700,000 jobs, said Rosengren, who supported the action as a voting member this year on the Fed’s Open Market Committee.
That would mean an unemployment rate at the end of 2012 of “around” 8 percent, “which means we’re still not where we want to be,” and inflation excluding food and energy may not be “dramatically different” than now, he said.
Yesterday, a group of 23 people including former Republican government officials and economists urged Fed Chairman Ben S. Bernanke to halt the expansion of monetary stimulus. The decision has been criticized by Republicans including Wisconsin Representative Paul Ryan, set to chair the House Budget Committee, who said Nov. 7 the Fed’s move is a “big mistake” that will cause an “inflation problem.”
Rosengren, the Boston Fed’s president since 2007, said private forecasters see inflation staying below 2 percent for the next year, and “most of the interest rates do not seem consistent with a hyperinflation story or even a high inflation story.”
“Congress had made very clear what they want us to focus on,” Rosengren said. “This policy focuses on trying to get the economy growing fast enough that we bring the unemployment rate down more quickly than we otherwise would and bring the inflation rate back to what we think is financial stability.”
Two Republican lawmakers, Indiana Representative Mike Pence and Tennessee Senator Bob Corker, are proposing to change the Fed’s legislative mandate to focus only on controlling inflation instead of also on maximum employment.
That kind of change now “really wouldn’t affect policy all that much because we’ve had disinflation over the last year and a half,” Rosengren said. “Right now there’s not a conflict.”
“There are times when inflation and unemployment are not necessarily consistent in terms of what you should do,” Rosengren said. “That is a tension that is worth discussing. So personally I think we should have a dual mandate, but if Congress says that we should focus on a single mandate, then that’s what we would focus on.”
Before the Fed’s decision, Rosengren said Sept. 29 that policy makers have the tools to act and should respond “vigorously, creatively, thoughtfully and persistently” to a slow recovery.
Skepticism About Stimulus
Several policy makers have expressed opposition or skepticism about the stimulus. Fed Governor Kevin Warsh said last week that he is “less optimistic than some that additional asset purchases will have significant, durable benefits for the real economy.”
Asked about the division of views on the FOMC, Rosengren said that “there’s controversy whenever you’re in unusual circumstances and you’re making decisions that are outside the recent experience.”
“It’s not surprising that there would be a robust discussion about what appropriate actions would be,” he said. “The Federal Reserve is designed to encourage a wide range of views to be voiced, considered seriously, and then a consensus around what the appropriate decision should be. I think that has worked.”
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