Bloomberg News

Rosengren Favors More Easing if Unemployment Stays High

March 27, 2012

Federal Reserve Bank of Boston President Eric Rosengren said the U.S. central bank may need to ease monetary policy if unemployment stays too high.

“If real GDP does not grow more rapidly and unemployment remains at its current unacceptably high level, monetary policy may need to be more accommodative,” Rosengren said today in London. The Fed has “flexibility in the response of monetary policy” as the unemployment rate persists at 8.3 percent and given the likelihood the central bank will “undershoot” its inflation target, he said.

Chairman Ben S. Bernanke said yesterday that while a recent decline in the jobless rate is encouraging, continued accommodative policy will be needed to achieve further progress. The unemployment rate held last month at a three-year low.

Any new Fed asset purchase program to stimulate economic growth may be targeted at reviving the housing market, Rosengren said in response to audience questions.

U.S. real estate is “still weak” and a drag on the recovery, so “I would be very comfortable should it be needed that we focus on mortgage backed securities” in any new bond purchase program by the Fed, Rosengren said.

Risks to the economic outlook include rising oil prices, which “could derail a fragile recovery,” and U.S. fiscal policy, “which could get very contractionary” early next year, Rosengren said to the National Institute for Economic and Social Research.

‘Very Weak’

Recent economic reports show “improved financial market conditions and continued -- albeit painfully slow -- progress in labor markets,” he said. Still, “the spending data have been very weak” and suggest “recent improvements are probably unsustainable” with U.S. economic growth at around a 2 percent level.

“It may take several quarters” to determine whether the strength shown by markets and employment can be sustained, he said.

The Boston Fed official, 54, cited weakness in the U.S. housing market and state and local government spending as weighing on growth. Formerly the head of banking supervision and regulation at the bank, Rosengren doesn’t vote this year on monetary policy.

“Should growth slow down more than is expected, more policy accommodation could be advisable,” he said.

‘Reasonable’ Period

“Even if growth should improve more than expected in the U.S., the country will likely remain far from what anyone would consider full employment,” he said. “So in my view policy accommodation should only be removed once it is clear that” full employment and stable prices “can be achieved within a reasonable period of time.”

The Standard & Poor’s 500 Index was little changed at 1,417.23 at 2:47 p.m. in New York. Yields on 10-year Treasury notes fell five basis points, or 0.05 percentage point, to 2.19 percent.

First-time claims for unemployment insurance decreased by 5,000 to 348,000 in the week ended March 17, the fewest since February 2008. About 1.2 million jobs were created in the past six months, the most since the same period ended May 2006, Labor Department figures show.

Rosengren’s consideration of further easing has been echoed by other Fed officials.

While economic reports have improved, it is “far too soon to conclude that we are out of the woods” and “nothing has been decided” on more bond purchases, New York Fed President William C. Dudley said March 19.

Too High

Chicago Fed President Charles Evans said March 22 that “clearly, more accommodation would be appropriate” with unemployment too high.

In contrast, James Bullard, president of the St. Louis Fed, and Atlanta’s Dennis Lockhart said last week that the improving U.S. economy is reducing the need for additional easing. The Fed has held interest rates near zero since 2008 and purchased $2.3 trillion in bonds to spur growth after unemployment rose to as high as 10 percent in 2009.

The U.S. economy expanded at a 3 percent annual rate in the fourth quarter, the fastest pace in more than a year, as households spent more freely. Growth will probably slow to 2 percent this quarter, according to the median of 72 economists’ forecasts in a Bloomberg News survey from March 9 to March 13.

To contact the reporters on this story: Steve Matthews in Atlanta at;

To contact the editor responsible for this story: Christopher Wellisz in Washington at

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