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Boston Fed President Asks for a Delay in Interest Rate Increases

Boston Fed President Asks for a Delay in Interest Rate Increases

first_img June 1, 2015 483 Views Eric Rosengren, president and CEO of the Federal Reserve Bank in Boston, said in his speech called “One Policymaker’s Wait for Better Economic Data” at the Capital Workforce Partners “Workforce Stars” Event in Hartford, Connecticut that predictions concerning the economy have been much weaker than expected in the first half of this year. He also noted that policymakers should wait until the economy picks up before raising short-term interest rates.Rosengren mentions the severe winter we endured last year as one of the reasons that economic activity is dragging. He also says that although the weather deterred economic activity, the data was also down before the storms and has been weaker than expected ever since.The last three quarters of real GDP growth have been a disappointment, and forecasts a bit too optimistic, he says in his speech.“Despite a disappointing first half, most forecasters expect a stronger second half of the year,” Rosengren said. “Among the factors supporting this optimism are growth in personal income, the positive impact of lower gas prices, and household net worth that continues to grow. However, so far this improvement is only in the forecast, and not in the data. The data have disappointed before, and an appropriately data-dependent monetary policy requires confirmation in the numbers, not just in forecasts of better times.”Since the change in seasons, the economic numbers have not improved and retail sales do not show large variations by region, while only some regions had severe winter weather. In contrast, the personal saving rate has grown significantly from where it was before the Great Recession.“If consumer behavior is still being impacted by the experience of the financial crisis, the Great Recession, and the painfully slow recovery, then it is possible that the economy will not be as robust as many economic models would suggest, because the models do not take into account this behavioral change,” Rosengren said.The economic data is the reason as to why the monetary policy conditions have not yet been met, he mentions in his speech.Rosengren observed real GDP growth in the two years preceding the tightening cycles and it was above 3 percent. Today, that rate is at 2.3 percent, and will possibly be less than 2 percent in the first half of this year.“In my view, such a pace of GDP growth does not meet some of the economic preconditions we look for when we begin a tightening cycle,” Rosengren said.Making note of the Federal Reserve’s dual mandate from Congress that is focused on stable prices and maximum sustainable employment, Rosengren said that measures of inflation are not yet showing much evidence of returning to the 2 percent level that the Fed is targeting.“If the economy continues to grow at the same pace as we witnessed on average in the current and the past two quarters, I do not expect to see timely improvements in the unemployment rate and sufficient progress towards the 2 percent inflation target,” Rosengren said. “This, in my view, makes a compelling argument for continued patience in monetary policy.” Share Boston Fed President Asks for a Delay in Interest Rate Increasescenter_img Capital Workforce Partners Federal Reserve Bank in Boston One Policymaker’s Wait for Better Economic Data Short-Term Interest Rates 2015-06-01 Staff Writer in Daily Dose, Data, Featured, News, Originationlast_img read more