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Rosengren Says Low Inflation Shows Fed Can Ease Further

The Federal Reserve can consider further monetary-policy easing because of low inflation and the weak U.S. job market, Federal Reserve Bank of Boston President Eric Rosengren said.

“That gives us some flexibility to think about additional monetary-policy accommodation,” he said today at an Institute of International Finance conference in Copenhagen.

Rosengren said he expects U.S. gross domestic product to grow 2.3 percent this year. Inflation will probably be lower than the roughly 2 percent target the Fed aims to preserve, he said, citing forecasts for personal consumption expenditure measures.

“I do think we’ll undershoot on inflation over the course of this year, both PCE total and core, expected to be about 1.7 percent,” he said. “That does mean we’re going to be missing somewhat significantly on both sides of our mandate.”

Rosengren urged the Fed to focus on housing if it decides to expand its balance sheet, because U.S. housing markets face headwinds even as they pick up steam. He said he’s “pretty confident” that unconventional monetary-policy actions can make a “significant difference” helping to spur a recovery.

The Federal Reserve is responsible for the dual goals of price stability and full employment. For 2012, Rosengren is an alternate member of the Federal Open Market Committee, the Fed’s monetary policy-setting panel.

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