Rosengren Says Jobless Rate Justifies Continued Fed Easing
Federal Reserve Bank of Boston President Eric Rosengren said the central bank should press on with its bond-buying stimulus as the unemployment rate remains above its goal and inflation is below its objective.
“Consistently missing our inflation target alone would justify a highly accommodative policy,” Rosengren, who votes on U.S. monetary decisions this year, said in a speech prepared for delivery today in Boston. “Coupled with persistently high unemployment, the justification for continuing highly accommodative policy by large-scale asset purchases is clear.”
Inflation in February was 1.3 percent, below the Fed’s 2 percent target and close to the lowest level since 2009, while growth has been too weak to generate jobs for millions who are out of work. The jobless rate fell to 7.6 percent in March, a four-year low, as more Americans abandoned the search for work.
Fed officials are debating how and when they will curtail asset purchases that have swollen the central bank’s balance sheet to a record $3.23 trillion. The policy-setting Federal Open Market Committee led by Chairman Ben S. Bernanke decided last month to continue $85 billion in monthly bond buying until the labor-market outlook improves “substantially.”
The current quantitative easing program is aggressive enough if it continues and it may be appropriate to slow the purchases when the jobless rate declines to 7.25 percent, Rosengren said in an interview with CNBC today. Conditions may warrant that policy makers “consider tapering” even before unemployment reaches that level, which he said may happen by the end of this year.
‘Taper or Stop’
“I’d like it to happen not by people pulling out of the labor force but by getting the kind of payroll employment growth that’s consistent with an improvement in the labor markets,” Rosengren said in the CNBC interview. “If we’re really seeing significant pick-up in payroll employment and we’re seeing labor markets tightening up, it may be appropriate at that time to either taper or stop our purchase program.”
The economy probably expanded at about a 3 percent annual pace in the first quarter that will decelerate to 1.5 percent in the second quarter, Rosengren said in the interview.
“There’s strength in the underlying economy,” he said. “If you’d asked me six months ago would we have the kind of growth that we’ve been getting with the tax increase, with the sequester, with the problems in Europe, I probably would have expected a slower economy than what we’re actually finding.”
Rosengren is one of seven central bank officials voicing support for pressing on with asset purchases. The officials, commenting in speeches and interviews last week, include four others who also hold a vote on the FOMC: Vice Chairman Janet Yellen, Governor Daniel Tarullo, Chicago Fed President Charles Evans and St. Louis’s James Bullard.
Falling short of both sides of the central bank’s dual mandate of price stability and full employment creates “a strong rationale for continuing our highly accommodative monetary policy,” Rosengren said in his speech today at the Boston Fed’s 57th economic conference.
Rosengren also said that other nations would benefit by adopting the Fed’s dual mandate, which is required by Congress. With its dual objectives, U.S. price stability has been as good or better than many countries operating with a single inflation mandate, he said.
“The dual mandate in the U.S. has been criticized by some for providing an inflationary bias,” Rosengren said. “However, the data show little such evidence. Inflation outcomes in the U.S. over the past 15-20 years appear to compare quite favorably to that of single-mandate countries.”
Rosengren said in an April 5 speech that the harm from long-term unemployment warrants a powerful effort by the Fed to boost the labor market. He said in a speech last month he wants to continue the central bank’s bond purchases through year-end and raise or lower the pace in response to economic data.
Rosengren, 55, became president of the Boston Fed in July 2007, and had previously served in the economic and supervision departments of the bank. The Boston Fed district includes Connecticut excluding Fairfield County, Massachusetts, Maine, New Hampshire, Rhode Island and Vermont.
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