WASHINGTON (MNI) – Stuttering economic growth and a lack of
progress on the jobs front, coupled with the expectation that conditions
will not undergo a marked improvement for the rest of the year, has a
senior Federal Reserve official calling for an aggressive, open-ended
bond buying program to spur economic activity.

“We’ve only been treading water in the labor markets … the GDP
reports have been disappointing,” Boston Federal Reserve Bank President
Eric Rosengren said Tuesday in an interview on CNBC.

“My expectation is the second half of the year won’t be much
better,” he added. “Given that we are only treading water, that’s the
reason why I would advocate for a more accommodative monetary policy.”

In the absence of any action by the Fed’s policymaking Federal Open
Market Committee, Rosengren predicted the unemployment rate will rise to
8.4% by the end of the year.

Rosengren will be a voter on the FOMC next year.

Rosengren argued that U.S. economic growth this year will be
substantially below the Fed’s expectations “calls for a much more
accommodative monetary policy.”

“I think it needs to be substantial enough that it offsets some of
the shocks that we are getting from abroad and some of the concerns that
people have with how weak the world economy has been,” he said of
monetary policy action.

The global economy is slowing down, Rosengren said, which makes the
case for a quantitative easing program “of sufficient magnitude.”

And rather than declaring at the outset how large or how long the
bond-buying program would be, Rosengren said he would argue for it to be
open-ended and focused on economic outcomes.

“If we do a quantitative easing program, we should be using
economic outcomes as what we are trying to get: we want a stronger
economy, we want faster growth in the income and we want a labor market
that has an unemployment rate that is clearly declining,” he said.

“So rather than setting a calendar date, rather than setting a
magnitude, you’d say we are going to do this monthly growth rate (of
purchases) until we see an improvement in the economy,” he said.

Asked how an open-ended QE program would work, Rosengren said the
focus would be on mortgage-backed securities, with purchases made at a
monthly rate — that could be altered if needed — but of a substantial
magnitude.

The open-ended nature of the program means “setting a quantity that
you are going to continue to buy until you get the economic outcomes you
want,” he said.

Still, there is a limit to how large the Fed’s balance sheet can
be, Rosengren cautioned, particularly as the central bank is limited to
just purchases of Treasury and mortgage-backed securities.

Rosengren argued that quantitative easing by the Fed has helped
push up asset prices and would also aid a housing market that has been
improving and starting to show some “legs.”

“My hope would be that the policy would be substantial enough that
we actually wouldn’t have to carry it on for that long and that we’d
start seeing real improvements in the economy,” he said.

As for the fears some have that another large asset purchase
program could stoke the inflation expectations, Rosengren said inflation
is below the Fed’s 2% target despite having implemented two QE programs
since 2008.

“While that’s a real concern and we have to factor that in, to date
we haven’t seen those inflationary pressures in part because we haven’t
gotten the economic growth that we were hoping to get,” he said.

** MNI Washington Bureau: 202-371-2121 **

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