Boston Fed Chairman Calls for More Inflation, Even If It Doesn't Help Economy

By:  Thomas R. Eddlem
11/02/2012
       
Boston Fed Chairman Calls for More Inflation, Even If It Doesn't Help Economy

Federal Reserve Bank of Boston President and CEO Eric S. Rosengren told a Babson College audience November 1 he favored the Federal Reserve continuing QE3 policies at least until unemployment falls below the 7.25 percent marker, even if the policies fail to stop another recessionary spike in unemployment.

Federal Reserve Bank of Boston President and CEO Eric S. Rosengren told a Babson College audience November 1 he favored the Federal Reserve continuing QE3 policies at least until unemployment falls below the 7.25 percent marker, even if the policies fail to stop another recessionary spike in unemployment. The Federal Reserve Bank's third round of “quantitative easing,” popularly called QE3, is an inflationary monetary policy that suppresses short-term interest rates through the Fed's discount "Federal Rate” to banks to near zero, and suppresses long-term interest rates by the Fed purchase of $40 billion per month of mortgage-backed securities on the open market.

“The program has so far worked as expected,” Rosengren told the Boston-area college audience. “Our use of unconventional policy tools has led to lower longer-term interest rates; higher equity prices; and, in a peripheral by-product of lower U.S. rates, exchange-rate effects.” But later in the speech the Federal Reserve Bank branch chairman admitted the Fed didn't really have any confidence their policies would work. “We must acknowledge the uncertainty surrounding the efficacy of these policies, as well as our ability to execute a graceful exit from unconventional policy.”

Rosengren said he wanted the Fed to follow the current open-ended policies at least until unemployment levels fall below 7.25 percent, though possibly even beyond that marker. “My own personal assessment is that as long as inflation and inflation expectations are expected to remain well-behaved in the medium term, we should continue to forcefully pursue asset purchases at least until the national unemployment rate falls below 7.25 percent and then assess the situation.”

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Photo of Federal Reserve Bank of Boston President and CEO Eric S. Rosengren: AP Images

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