–With US, Global Fiscal Austerity, Mon Pol Must Remain Accommodative
–Sees 2nd Half Growth Rebounding to 3.0-3.5% from 2.0% 1st Half

By Heather Scott and Jerry Kronenberg

WORCESTER, Ma. (MNI) – Boston Federal Reserve Bank President Eric
Rosengren said Wednesday there are “significant risks” to the U.S.
economic outlook amid the very weak recovery, and amid fiscal austerity
monetary policy must remain accommodative.

Rosengren said the recovery has been slower than he had expected,
and with the “painful” slack in labor markets there is room to keep
monetary policy accommodative.

In a speech prepared for delivery to a forum on challenges Facing
New England cities in Worcester, Massachusetts, Rosengren said, “there
are significant downside risks associated with an outlook that includes
only very slow improvement in the economy.”

And he said, “With fiscal austerity slowing down economies both
here and abroad, it will in my view be important to maintain
sufficiently accommodative U.S. monetary policy so that national labor
market conditions can improve.”

While he projected a modest rebound in the second half of the year
with growth of 3.0% to 3.5%, compared to expectations of just 2.0% in
the first half, Rosengren said it remains quite slow given the amount of
slack in the economy.

“These factors give monetary policy the leeway to remain
accommodative, so as to provide the monetary conditions for improved
economic growth,” he said.

Rosengren said the weak recovery is typical of after a financial
crisis, and said the slow first half was not a slow patch in the
recovery, but rather a return to the normal pace from the strong fourth
quarter.

The first half also felt the impact of the disasters in Japan,
which affected manufacturing. And even with “some positive signs” in
equipment and exports, “the employment report issued last Friday was
dismal.”

“Not surprisingly, with so much painful slack in the labor market
we are not seeing any significant wage pressure,” Rosengren said.

** Market News International **

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