Tags: Rosengren | Fed | rate | 2016

Fed's Rosengren: Fed May Stick with Zero Fed Funds Rate Until 2016

Tuesday, 05 Nov 2013 10:49 AM

By Dan Weil

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The Federal Reserve's federal funds target rate has stood at a record low of zero to 0.25 percent since December 2008. And it may stay that way into 2016, says Boston Fed President Eric Rosengren.

He suggested to CNBC that the economy must grow 3 percent for rates to rise.

The Fed has been saying in its policy statements that rates are unlikely to increase before the unemployment rate falls to 6.5 percent. The rate stood at 7.2 percent in September.

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"It depends on how the economy evolves," Rosengren said.

"You could easily imagine if we have relatively slow growth in the overall economy, even though it picks up from where we are now, that it could be 2016" when rates finally rise.

"You certainly need to have growth of 3 percent or faster if you wanted to be seeing short-term rates rising at that point."

The economy grew 2.5 percent in the second quarter, but almost certainly has decelerated since then.

Even if unemployment drops below 6.5 percent, he stated, "My expectation is that we'll still have a very low inflation rate at that point, and as a result, we're not going to need to be in much of a hurry to raise short-term rates.

Rosengren also says he wants to see better jobs data and economic growth before the Fed tapers its quantitative easing.

Economists generally don't expect the Fed to curb its bond purchases before March.

"I don't think Federal Reserve Board members would feel very comfortable about beginning the tapering process until we're closer to 200,000 jobs added each month," Mark Zandi, chief economist at Moody's Analytics, told CNNMoney.

"We're a long way from there — in fact we're moving in the wrong direction." The economy added 148,000 jobs in September.

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