On December 18, 2013 I dissented from the action of the majority of the FOMC because, as the statement issued by the Committee notes, I believe that, "with the unemployment rate still elevated and the inflation rate well below the target, changes in the purchase program are premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate."
Further commentary may be useful to illuminate my views and vote. I agree with the Committee's assessment that the economy has been improving, in part as a result of the Federal Reserve's asset purchase program. The national unemployment rate has declined to 7 percent, and recent data on payroll employment indicate that the U.S. economy has been creating close to 200,000 jobs per month.
I, too, expect the economy to continue to improve, and my forecast is for real GDP to grow at a rate close to 3 percent next year. Like the Committee, my assessment has brightened in recent months. But, by the same token, I do not yet have sufficient confidence in this outlook to risk the removal of any monetary accommodation at this time.
My hope and my forecast is that we will continue to accumulate evidence indicating a strengthening economy in coming months. Thus, my decision to cast a dissenting vote was focused on counseling patience in removing monetary accommodation. The U.S. economy remains far from the 5.25 percent unemployment rate that I believe is consistent with full employment, and total PCE inflation, at only 0.7 percent, is well below the Federal Reserve's inflation target of 2 percent.
Many have pointed to temporary factors that have likely suppressed inflation in recent months. As these temporary factors wane, many expect inflation to revert toward the Committee's 2 percent goal. However, the fact that the inflation rate has also been falling in many other developed countries and that core inflation has remained so low throughout this recovery suggests the risk that inflation has been depressed for other reasons, which may be less transitory. Stronger economic growth would likely help to move inflation back toward the Federal Reserve's target more quickly, and I think that is likely next year. But the stronger trajectory is not yet well-established in the economic data.
Over the recovery period, my forecasts, as well as forecasts of many others, have proven to be more optimistic than the actual outcomes. Furthermore, we remain far from both parts of the Federal Reserve's "dual mandate" on employment and inflation. As a result, I would prefer to wait until the economic improvement that I am forecasting is clearly evident in the data before reducing the size of the asset-purchase program. Given the remaining shortfalls from our targets, I think patience remains appropriate at this time.
Nonetheless, I appreciate the decision of the Committee to recognize the improvements in the economy that have occurred to date, and I am strongly supportive of the new forward guidance that anticipates that the Committee will maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below the 6.5 percent threshold. In my view, a highly accommodative policy remains both necessary and appropriate.
Eric S. Rosengren
President and CEO, Federal Reserve Bank of Boston
December 20, 2013