Tags: Fed | economy | growth | rosengren

Boston Fed Chief: Central Bank Must Act Now to Spur Economic Growth

Tuesday, 07 Aug 2012 08:23 AM

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The July jobs report shows that the economy has veered off course from an already tepid recovery and that the time for the Federal Reserve to intervene with monetary-stimulus tools has come, said Eric S. Rosengren, president of the Federal Reserve Bank of Boston.

The economy added a net 163,000 jobs in July, well above forecasts, yet households reported more people are losing jobs at the same time, which sent the unemployment rate rising to 8.3 percent from 8.2 percent in June.

More people continue to quit looking for work as well, which Rosengren said indicates the time has come for the Fed to roll out a new round of quantitative easing, under which the U.S. central bank buys bonds like Treasurys and mortgage-backed securities from banks, pumping the economy with liquidity in the process to kick-start recovery.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

"You continue to do it until it’s clear that you’re no longer treading water,” Rosengren told the New York Times.

“You continue to do it until you have documented evidence that you’re getting growth in income and the unemployment rate consistent with your economic goals.”

Other Fed officials have said the economy doesn't need monetary stimulus on the grounds that such tools work by pushing down interest rates, which are already low enough as it is.

Plus, such measures plant the seeds for inflation down the road.

Recovery takes priority over all else right now. “For the last seven months we’ve been treading water. That’s different from what we expected at the beginning of the year,” Rosengren said. “I think it’s time to swim to shore.”

Since the downturn, the Fed has rolled out two rounds of quantitative easing (QE1 and QE2), buying $2.3 trillion in Treasurys and mortgage-backed securities from banks to fuel recovery by encouraging investing and hiring across the economy.

The dollar has weakened and stocks have risen in the process, but some say the Federal Reserve should stand down and avoid rolling out QE3, as more monetary stimulus will pressure inflation rates higher while bringing little benefit.

Such critics of more Fed action include Republican presidential hopeful Mitt Romney

"I am sure the Fed is watching and will try to encourage the economy. But I don't think a massive new QE3 will help the economy," Romney said, according to CNN.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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