Fed's Rosengren: "Further Monetary Policy Accommodation is Both Appropriate and Necessary"

Eric Rosengren's Speech Slides (Boston Fed)
Boston Fed President Eric Rosengren is pessimistic about economic growth and believes the Fed should remain accommodative. Read his full speech with charts here. Also, check out this slide comparing the peaks and troughs of employment in 1980, 1991, 2001 and 2008. After the great recession ended, we are still well below peak employment, while all of the other years have given back their employment losses by now.

Here are Eric Rosengren's economic forecasts and views on monetary policy from the speech:

"You can see that my own forecasts are a little more pessimistic than the central tendency of the participants at the April FOMC meeting. I am expecting growth of only 2.3 percent for the full year, I’m sorry to say; and unfortunately no improvement in the current U.S. unemployment rate of 8.1 percent. As you can see, I also expect both total PCE inflation and core PCE inflation to be below 2 percent for 2012. My forecast of relative weakness in the economy reflects concern that the uncertainty about both Europe and the U.S. federal “fiscal cliff” will restrain spending by households and businesses – but it also assumes that Europe and our own fiscal situation achieve a “muddling through.”

I would, however, highlight the uncertainty and downside risks to my forecast. One downside risk is that European problems could become a much greater restraint on growth this year. Another downside risk is that Middle East problems could cause an oil supply shock that negatively affects economic growth. And another is that much greater fiscal austerity could result from a potential failure to reach budget agreements.

Given my expectations of only modest growth, no improvement in the unemployment rate, an inflation forecast below 2 percent, and significant downside risks to the forecast, I believe monetary policy should remain accommodative at this time and indeed that we should be looking for ways that monetary policy can foster more rapid growth, to bring down the unemployment rate more quickly. I believe further monetary policy accommodation is both appropriate and necessary. The U.S., like many other countries, needs to facilitate a more rapid recovery, and monetary policy is one important tool with the potential still for encouraging faster growth."
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