BOSTON (MNI) – Below are PowerPoint observations and responses of
Boston Federal Reserve Bank President Eric Rosengren at a Massachusetts
Investors Conference session Friday:

“The unemployment rate dropped to 8.6 percent. That’s a fairly
big decline from 9 percent. That is good news … but I would highlight
that a lot of (the drop) is because people pulled out of the workforce.
If you look at the employment-to-population ratio, which is something
that I like to focus on, there was only a 0.1 percent improvement in the
employment-to-population ratio. … So you want to get (a lower jobless
rate) because people give up looking for work? You want to get it
because people are getting jobs and coming back into the labor force. So
I think (the drop in unemployment) was good news — just not as good
news as I would actually like to see.”

“We’ve got very high unemployment, but it’s primarily because we
haven’t been creating enough GDP in the economy. What we need to do is
find ways to get GDP to be growing more rapidly.”

—

On the Fed’s international currency swap ease in terms: “Given the
movement in (European financial companies’) stock prices (in the past
few days) we have to be very concerned about the financial sector,
primarily in Europe but also in the United States.”

“I think this (intervention) actually has been very useful in
bringing (down) what were some very severe pressures on the
dollar-funding market. … So, that operation has, I think, been quite
successful in changing people’s perception about the pressures that were
going to be occurring in the Eurodollar market.”

“I would highlight, though, that monetary policy by itself cannot
get us back to full employment. It really is important right now that
policymakers both in Washington and in capitals in Europe get things
right, and we’ll see if that actually does occur.”

—

On Fed monetary policy: “Our goal is to get back to full employment
and roughly to have a 2 percent inflation rate. If you look at the core
rate of inflation we’re roughly there (now), and our forecast is that
we’ll probably be undershooting that over the next few years and it will
be quite some time before we’re back up to full employment.”

—

On money market funds, “If you look at what money market funds
actually were investing in (recently), they were investing in short-term
paper of European banks … Money market funds were taking credit risk
— that was the only way that they could get a reasonable (return).”

“One of the concerns for money market funds is, given that they’ve
had to take some credit risk, should they have a little bit of capital
(reserves)? They’re less risky than many types of financial
intermediaries, but under the rules that we have, they don’t have to
hold any capital at all. (Perhaps they should have) a bit of capital
buffer so we don’t have the kind of situation we had when the Reserve
Fund took a loss (in 2008) on Lehman paper (and the U.S. government had
to temporarily back money market funds to prevent runs on them). … The
last thing I want to do is to have to go through an experience like that
again. So I think its an appropriate time to take a fresh look at how we
supervise and regulate money market funds to make sure that that type of
(problem) doesn’t happen again.”

** Market News International – Boston **

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