Federal Reserve Bank of Boston President Eric Rosengren said the Fed should press on with record accommodation even while he predicted economic growth will speed up to 3 percent during the second half of this year.
“Continued monetary accommodation is absolutely appropriate and indeed needed as long as we are projected to miss on both elements of the Fed’s dual mandate, inflation and employment,” Rosengren said today in remarks prepared for a speech in Providence, Rhode Island.
“Currently inflation is somewhat below our 2 percent target, and unemployment is well above a longer-run sustainable rate,” Rosengren told the Greater Providence Chamber of Commerce.
Fed officials are considering how long they will keep buying mortgage bonds and Treasuries as part of efforts to spur growth and reduce a 7.8 percent unemployment rate. The Fed last month linked its interest-rate outlook to economic thresholds, saying borrowing costs will stay low “at least as long” as joblessness exceeds 6.5 percent and if projected inflation won’t go beyond 2.5 percent one or two years in the future.
Rosengren highlighted the central bank’s obligation to meet its congressional mandate for stable prices and maximum employment. The Fed deems 2 percent inflation and an unemployment rate of 5.2 percent to 6 percent, as consistent with those goals.
While some Fed policy makers have suggested the bond-purchase program should end sometime in 2013, Rosengren said “monetary policy should be guided by current and future economic outcomes, not calendar dates.”
The central bank has a number of tools to withdraw stimulus when the economy is stronger, Rosengren said, responding to an audience question.
“We’re not at that point now,” he said. “I don’t expect to be at that point for most of this year.”
U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will extend yesterday’s drop, as concern about talks on raising the debt ceiling intensified and manufacturing in the New York region contracted. S&P 500 futures expiring in March fell 0.4 percent to 1,458.8 at 8:59 a.m. New York time.
Even as he called for continuing stimulus, Rosengren offered an optimistic assessment of the economy, saying housing and auto sales will rise this year because of the Fed’s low-interest rate policies.
“I expect growth in the second half of the year to be closer to 3 percent -- assuming that headwinds from fiscal imbalances around the world are not resolved in economically disruptive ways,” he said. That makes the 55-year-old Boston Fed chief’s forecast more optimistic than the median estimate in a Bloomberg survey of economists, which projects growth of 2 percent in 2013.
Fed presidents rotate voting on monetary policy, with Rosengren scheduled to gain a voting seat at the Federal Open Market Committee’s Jan. 29-30 meeting. Also joining the committee will be Chicago’s Charles Evans, Kansas City’s Esther George and James Bullard of St. Louis.