Federal Reserve Bank of Boston President Eric Rosengren, a consistent backer of bond buying by the Fed, said the central bank should press on with the easing program until the labor market gains strength.
“Monetary policy is likely to need to remain accommodative for some time so that we can achieve full employment within a reasonable forecast horizon,” Rosengren, who votes on monetary policy this year, said Monday in a speech in Boston.
The Fed will still provide stimulus even after it starts tapering $85 billion in monthly bond purchases, he said in the text of prepared remarks. “We will not be restraining the economy -- in fact, we will still be adding stimulus to the economy but in smaller increments than before.”
Rosengren has supported Chairman Ben S. Bernanke’s campaign to return the economy to full employment by using bond buying to bring down long-term interest rates. So-called quantitative easing has expanded Fed assets to a record $3.84 trillion.
The unemployment rate was 7.2 percent in September, nearly 2 percentage points above the 5.25 percent unemployment rate that Rosengren said is achievable.
“While there have been some areas of improved economic performance, unfortunately the economy remains challenged,” he said.
“On the plus side, firm and household balance sheets have improved, recovery in stock and house prices have provided more capacity to resume consumption patterns, the fiscal headwinds are expected to diminish somewhat, and some of our trading partners are showing signs of recovery,” he said.
Rosengren, 56, became president of the Boston Fed in 2007. He has only dissented once from a monetary policy decision when, in December 2007, he favored a more aggressive interest rate cut to shore up a weakening economy.
The Fed’s target interest rate should remain low after the end of bond purchases, Rosengren said Monday.
“Even when the Fed eventually removes some of its accommodation, such as large-scale asset purchases, we will in my view need to leave short-term interest rates at their very low levels until there is much more progress reaching full employment and the 2 percent inflation target,” he said.
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