Rosengren: Fed Avoided "Great Stagnation"

Before you go, we thought you'd like these...
Before you go close icon

What some economists and policy makers choose to refer to as a "lost decade," Boston Federal Reserve President Eric Rosengren calls the "Great Stagnation," which he said could happen:

if policymakers of all sorts - monetary, fiscal, economic, and financial - were to adopt a stance of only reacting to large negative shocks, while accepting (and declining to act against) a status quo of substantial underutilization of resources, for an extended period of time.

In a speech today in Massachusetts, Rosengren expressed strong support for the FOMC's recent policy action:

Absent further policy action, most economists expect several more years of weak labor markets and low inflation. As a consequence, it was time for the Fed to announce stimulus that will continue until the U.S. achieves both faster economic growth and lower unemployment, no matter the unanticipated interruptions.

Not a lot of doubt here about Rosengren's position. Still, he makes no promises:

However, I want to be careful not to appear to promise too much, as there are limits to the effects of monetary policy. Even with these actions, and assuming no additional negative shocks domestically or internationally, it will still be several years before we are likely to return to full employment.

Rosengren's implication is that without some real action on fiscal policy from the Congress, recovery prospects are limited:

[I]t is important to note that significant fiscal policy mistakes, such as an unlikely failure to address the looming "fiscal cliff" in the U.S., would have effects on economic growth that would be difficult to fully offset with monetary policy.

The full text of Rosengren's remarks is available here.

Paul Ausick


Filed under: 24/7 Wall St. Wire, Banking & Finance, Regulation
Read Full Story

From Our Partners