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Rosengren Seeks Signs of Growth Citing Inaccurate Forecasts

Federal Reserve Bank of Boston President Eric Rosengren. Photographer: Neal Hamberg/Bloomberg
Federal Reserve Bank of Boston President Eric Rosengren. Photographer: Neal Hamberg/Bloomberg

Dec. 20 (Bloomberg) -- Federal Reserve Bank of Boston President Eric Rosengren, the lone dissenter from the Fed’s plan this week to taper its bond purchases, said policy makers should have waited for more evidence of economic strength rather than rely on forecasts that have too often been wrong.

“We should be humble about our forecasting capabilities,” Rosengren said today in an interview with Bloomberg News. “We should see it more strongly in the data before we act,” he said, adding he wants more evidence the economy would grow 3 percent next year.

After buying $85 billion in bonds every month in 2013, the Federal Open Market Committee announced Dec. 18 it will cut the purchases to $75 billion in January, with Chairman Ben S. Bernanke citing “cumulative progress and an improved outlook for the job market.”

Rosengren said he believes “there seems to be little harm in waiting until we have more substantial information” showing a solid economic expansion.

Fed officials have repeatedly been too optimistic about the economy’s ability to grow faster. FOMC participants in December 2012 forecast growth as high as 3 percent for 2013. At their meeting this week, they said the economy will probably expand at about 2.3 percent.

The FOMC met before a government report today showed the U.S. economy expanded in the third quarter at the fastest rate in almost two years as Americans stepped up spending on services such as health care and companies invested more in software.

GDP Rises

Gross domestic product climbed at a revised 4.1 percent annualized rate, the strongest since the final three months of 2011 and up from a previous estimate of 3.6 percent, according to Commerce Department data. The gain exceeded the most optimistic projection in a Bloomberg survey.

“The GDP for the third quarter is pretty strong,” Rosengren said. “Most analysts think that’s in part taking away from the fourth quarter.”

“I would like to see indication the economy is going to grow at 3 percent going forward, so that the unemployment rate is falling for the right reasons,” Rosengren said. He is “hopeful” the data will confirm that outlook by the Fed’s March 18-19 meeting, he said.

Fed presidents rotate voting on monetary policy, and Rosengren won’t have a vote beginning next month.

The risk of too-low inflation is a second reason Rosengren voted against reducing bond purchases, he said.

Slow Inflation

The Fed’s preferred measure of inflation, the personal consumption expenditures index, showed prices rising 0.7 percent in the 12 months ended in October. It hasn’t breached 2 percent since April 2012.

“Many have pointed to temporary factors” for low inflation, Rosengren said in a statement on the Boston Fed’s web site today explaining his dissent. “The fact that the inflation rate has also been falling in many other developed countries and that core inflation has remained so low throughout this recovery suggests the risk that inflation has been depressed for other reasons, which may be less transitory.”

The Standard & Poor’s 500 Index rose 0.6 percent to 1,820.02 at 3:49 p.m. in New York, while the yield on the 10-year Treasury note fell 0.05 percentage point to 2.88 percent.

Outspoken Supporter

Rosengren, 56, became president of the Boston Fed in July 2007 and has been among the most outspoken supporters of Fed stimulus. He has dissented only once, opposing a FOMC decision in December 2007 to cut the Fed’s target interest rate to 4.25 percent from 4.5 percent. He argued that the Fed should cut rates more quickly as the economy was deteriorating.

“The possibility that the economy will soon be in a recession is too high, and our action should be significant enough to substantially reduce that risk,” Rosengren said at the meeting in 2007, according to transcripts released earlier this year.

His objection proved prescient as December 2007 marked the beginning of the longest and deepest recession since the Great Depression. Unemployment soared to 10 percent in October 2009.

“You never dissent casually,” Rosengren said today. “That was a very different dissent. The previous dissent was that I was worried the economy would experience much greater weakness.”

Seeks Proof

This time, he said he agrees with his colleagues that the economy will most likely strengthen. Still, he said he needs to see proof, and he cautioned that risks remain, especially from Congress which has struggled to reach agreement to raise the nation’s statutory borrowing authority and shut down the government for 16 days in October.

“The debt ceiling is still an issue,” Rosengren said. “We could end up having a disruptive discussion about fiscal policy.”

Rosengren has supported the Fed’s most recent easing, arguing the policy has provided a powerful boost to autos and housing, two industries which respond to lower interest rates because of the use of loans to finance homes and cars. While some on the FOMC have warned that the policy poses risks to financial stability or is losing effectiveness, Rosengren said he disagrees.

“The benefits exceed the costs at this point in time,” he said.

To contact the reporter on this story: Joshua Zumbrun in Washington at

To contact the editor responsible for this story: Chris Wellisz at

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