Rosengren Warns Exit From Stimulus May Bring Volatility

Federal Reserve Bank of Boston President Eric Rosengren warns that a relative calm in markets “may be challenged in the future” as the Fed reduces accommodation. *The sharp rise in interest rates last year is a reminder that “uncertainty or misunderstanding about the contours of our exit has the potential to be problematic,” Rosengren says in a speech in Guatemala City *Recent low volatility in the U.S. Treasury market is due “in part to the very gradual and predictable reduction” in the Fed’s large-scale asset purchases, “along with an economy that has continued to improve, albeit only gradually and with some setbacks along the way:” Rosengren *As part of an eventual reduction in stimulus, the Federal Open Market Committee could “decide to reinvest all but a given percentage of securities on the balance sheet as they reach maturity, and increase that percentage at each subsequent meeting:” Rosengren *Maintaining a large balance sheet would give the FOMC “continuing options for impacting longer-term interest rates and the spread” between mortgage-backed securities and Treasuries in pursuit of financial stability: Rosengren *NOTE: Rosengren does not vote on the FOMC this year

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