Why Rosengren expects Fed to again resort to asset purchases

Although large scale asset purchase programs may not be as effective as previously believed, Federal Reserve Bank of Boston President Eric Rosengren said Friday, “it is quite likely” that the programs will be needed in the future.

Federal Reserve Bank of Boston President Eric Rosengren
Eric Rosengren, president and chief executive officer of the Federal Reserve Bank of Boston, arrives for a dinner during the Jackson Hole economic symposium, sponsored by the Federal Reserve Bank of Kansas City, in Moran, Wyoming, U.S., on Thursday, Aug. 24, 2017. Two Federal Reserve officials took opposite sides of the central bank's ongoing debate over how to respond to disappointingly low inflation figures, as policy makers gathered for their annual symposium in Jackson Hole, Wyoming. Photographer: David Paul Morris/Bloomberg
David Paul Morris/Bloomberg

Since real rates are expected to remain depressed in the U.S. as a result of slow productivity and labor force growth, with the median long-term fed funds rate predicted to be 2.8%, Rosengren told the monetary policy forum, he believes the purchases will resurface, according to material released by the Fed.

“Almost all recessions have resulted in the Fed lowering nominal rates by much more than 2.8 percentage points,” he noted.

Rosengren said he “Agree[s] the evidence is consistent,” that large scale asset purchases have “some impact, of uncertain magnitude.” However, short-term rates are the preferred method of conducting monetary policy since that is “the better understood and tested way.”

Further, the Fed should avoid cutting rates to zero, and can accomplish that through fiscal policy, although politics could hamper that option.

Another suggestion he offered was altering the Fed's monetary policy framework. “I personally view inflation range with varying inflation target as promising,” he said.

Rosengren is not a Federal Open Market Committee voter this year.

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Monetary policy Federal Reserve Federal Reserve Bank of Boston FOMC
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