Perspectives on Monetary Policy and Market Volatility
January 9, 2019
Boston Economic Club
Federal Reserve Bank of Boston President Eric Rosengren spoke Wednesday about the economy’s outlook, recent stock-market volatility, and the implications for the Fed’s monetary policy.
In his talk, Rosengren contrasts the pessimism reflected in financial markets with the relatively optimistic outlooks of professional forecasters and Fed policymakers.
“At least to date, the economic data and the outlook of forecasters have both been more optimistic than recent financial market movements might indicate.”
Rosengren suspects financial market sentiment “may have become unduly pessimistic.” His own view is for growth in 2019 “solid enough to tighten the U.S. labor market somewhat.”
However, concerns with global growth, international trade, and geopolitical upheaval are important, and make the economic outlook “quite uncertain.” Actual economic outcomes could diverge significantly from what is being forecast.
Rosengren said monetary policy is currently appropriately balancing risks. At this juncture, with two very different scenarios implied by market volatility and by economic forecasts, “I believe we can wait for greater clarity before adjusting policy.”
“There should be no particular bias toward raising or lower rates until the data more clearly indicate the path for” economic growth. “Monetary policy should not be on a set course, but rather should take into account and reflect how the real economic data unfold.”
“If the pessimism evident in financial markets eventually shows through to economic outcomes, there would be less need—and perhaps no need—for further increases in interest rates,” Rosengren said. “However, my current expectation is that the more optimistic view will prevail, with economic outcomes consistent with the more upbeat forecasts” – given factors like robust labor markets and strong consumer confidence.
But in sum, “the Federal Reserve’s current monetary policy seems appropriate for now, and can patiently observe future economic developments,” Rosengren said.
Eric Rosengren was speaking to the Boston Economic Club.