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Fed Update: Rosengren Says Fed QE Needed
In a NY Times interview, Boston Fed President Eric Rosengren (who is not a voting member of the FOMC this year) said that he was in favor of the Fed further expanding its holdings of Treasury and mortgage bonds – a program commonly referred to as quantitative easing (QE).
Rosengren added that the central bank should steadily continue its purchases until it was satisfied with the direction of the economy.
In an interview with the Wall Street Journal, Mr. Rosengren likened the economy to a swimmer treading water and getting nowhere.
Rosengren told the Journal that many measures of the job market remain soft. For example, Rosengren pointed to the percentage of the population that is employed, which fell from 58.6% in June to 58.4% in July and is lower than it was at the beginning of the year.
The Boston Fed President added, "That calls for a more substantive action than we've taken to date," he said. "We need a pro-growth monetary policy."
Aaccording to the WSJ, Rosengren is part of a wing of policy activists at the Fed who have pushed for more aggressive responses to a weak economy. The WSJ noted that Rosengren's decision to speak out forcefully in favor of more Fed stimulus is a sign of the momentum building inside the Fed for a new phase of action. The goal of an additional bond-buying program would be to drive down long-term interest rates, drive up stocks and push down the value of the dollar, which many officials believe would spur overall economic activity.
Rosengren also said that the Fed should gradually reduce the 0.25% interest rate it pays banks for the cash they leave on reserve. Note that the ECB recently cut the rate the central bank pays on deposits. Such a plan is designed to encourage banks to take higher risks with their capital reserves.
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