Tags: rosengren | federal reserve | inflation | rates

Rosengren: Fed Should Remain Patient Amid Low Inflation

Thursday, 05 February 2015 07:10 AM

The Federal Reserve should remain patient in the face of too-low inflation, a U.S. central banker said on Thursday, as he credited open-ended bond purchases with helping the Fed avoid deflation.

Speaking in Frankfurt, home of the European Central Bank, Boston Fed President Eric Rosengren said “open-ended quantitative easing tied to policy goals is likely to be much more effective than limited quantitative easing programs,” according to a text of his prepared remarks.

His comments come after ECB President Mario Draghi on Jan. 22 announced an open-ended program of bond buying, also known as quantitative easing, to prevent deflation in the euro area, overcoming opposition from Germany. Euro zone consumer prices fell 0.6 in January from a year earlier.

Rosengren, who is not a voting member of the policy-setting Federal Open Market Committee this year, said the low level of inflation in most developed economies meant the U.S. central bank shouldn’t hurry to raise interest rates.

“A policy of patience in the United States continues to be appropriate,” Rosengren said.

“There is insufficient evidence that U.S. inflation is clearly trending toward the 2 percent goal” targeted by the U.S. central bank.

The FOMC has assured investors it can be “patient” in considering when to raise rates. Fed Chair Janet Yellen, in a press conference following the December FOMC meeting, said the phrase meant the committee was unlikely to move rates in its subsequent two meetings.

Under that guidance, the FOMC would have to drop “patient” in March if it wished to leave open the possibility of a rate increase in June.

Conclusions Premature

Focusing his comments on the U.S. experience of QE, Rosengren said it would be “premature to draw hard and fast conclusions for the global context.” The Fed conducted three rounds of bond buying that collectively more than quadrupled the size of its balance sheet to $4.5 trillion. It ended purchases in October.

Rosengren credited the Fed’s dual mandate, which obliges the central bank to place as much weight on attacking unemployment as inflation, with providing room for policy makers to pursue aggressive quantitative easing.

In contrast to the Fed’s dual mandate, the main task of the ECB is to maintain price stability in the euro area, defined as inflation below but close to 2 percent.

The Fed’s third round of QE came when inflation was not far below the Fed’s 2 percent target, he said.

“In absence of the dual mandate, some significant and I would say needed policy actions may not have occurred,” he said.

He added that the open-ended nature of the Fed’s purchases and the clarity of the bank’s communication on the program also helped it achieve its goals.

Failing to act could have left the U.S. economy stagnating, he said, with interest rates near zero for an even more extended period.

“Significant undershooting of the inflation target should be treated with the same policy urgency as a significant overshooting,” he said.


© Copyright 2020 Bloomberg News. All rights reserved.


   
1Like our page
2Share
Finance
The Federal Reserve should remain patient in the face of too-low inflation, a U.S. central banker said on Thursday, as he credited open-ended bond purchases with helping the Fed avoid deflation.
rosengren, federal reserve, inflation, rates
488
2015-10-05
Thursday, 05 February 2015 07:10 AM
Newsmax Media, Inc.
 
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved