Top takeaways from President Rosengren’s March 9 talk
Provides perspective on the economy and Fed policy
Boston Fed President Eric Rosengren spoke today at the Springfield Regional Chamber Outlook 2018 in Springfield, Mass. These are the top takeaways from his talk.
1. Assessing the overall picture
Rosengren said that economic data “have been quite good, monetary policy remains accommodative, and fiscal policy has just become quite a bit more stimulative.”
The unemployment rate, he said, is now below even the lowest estimates by Federal Reserve policymakers for the level that is likely to be sustainable in the longer run.
2. Gauging the strength of the labor market
The notable strength of the labor market provides some confidence in hitting the 2 percent inflation target.
Rosengren noted that the number of individuals filing initial claims for unemployment insurance is at low levels not seen since the late 1960s and early 1970s, when the labor force was considerably smaller than it is today.
3. Avoiding a “boom and bust” economy
While a tight labor market provides definite advantages – such as employment opportunities for workers who have struggled to find a job – “providing too much stimulus from either monetary or fiscal policy at this stage of the economic cycle could threaten to create a so-called ’boom and bust’ economy,” which policymakers certainly want to avoid, said Rosengren.
He also noted that recent volatility in stock and bond markets likely reflects, in part, the realization that financial markets need to factor in the risk that wages and prices could grow too quickly in the event of too much fiscal and monetary stimulus, “particularly with the economy currently at or beyond full employment, and inflation approaching the Fed’s goal.”
4. Seeking a sustainable path by removing monetary policy accommodation
“To keep the economy on a sustainable path, I expect that it will be appropriate to remove monetary policy accommodation at a regular but gradual pace,” Rosengren said, “and perhaps a bit faster than the three, one-quarter point increases envisioned for this year” in the December projection of appropriate policy by Fed officials.
Rosengren said that this expectation assumes, of course, the data continue to come in more-or-less consistent with his outlook.