Taper Unlikely Unless Data Improves – Boston Fed President

Boston Federal Reserve President Eric Rosengren spoke with FOX Business Network’s (FBN) Peter Barnes about the government shutdown and its impact on economic growth. Rosengren said, “We were expecting the fiscal headwinds to actually abate, that fiscal policy would stop being a headwind. That doesn’t look like it’s going to be true and actually fiscal policy right now is being more disruptive than we would have anticipated.” Rosengren discussed whether tapering quantitative easing would begin anytime soon and said, “It would be nice if the economy were able to quickly snap back from what’s currently occurring down in Washington,” but that “it’s unclear at this point.”

On whether the government shutdown and the budget conflict will cause economic growth to slow down:

“Fiscal disruptions have the potential to slow down the economy in an undesirable way. We were expecting that we would actually see a pickup in the second half of the year, that was partly driven by the hope that consumption would improve. We’ve had, up to now, an improving stock market, housing prices that have been going up and some increases in payroll employment growth. All those factors would say that normally you would expect consumption to be improving and we were expecting the fiscal headwinds to actually abate, that fiscal policy would stop being a headwind. That doesn’t look like it’s going to be true and actually fiscal policy right now is being more disruptive than we would have anticipated.”

On whether tapering quantitative easing will happen anytime soon:

“It depends on the economy, it would be nice if the economy were able to quickly snap back from what’s currently occurring down in Washington. It’s unclear at this point but unless we do get stronger data than what we are likely to see I would not expect that we would be removing the accommodation.”

On the Fed keeping policy accommodative until 2016:

“At the September meeting we were concerned that there was a risk that we might have a fiscal shutdown and possibly problems with the debt ceiling. Now we actually have had the shutdown, remains to be how the discussion is with the debt celing. That does mean we may have a weaker second half of the year than we were forecasting even at the September meeting. It’s not just what’s happening with the government spending, it’s what happens with businesses and households as they see what’s happening in Washington. To the extent that we want to get a stronger economy we shouldn’t be removing accommodation until we actually see that in the data.”

On whether the Fed would increase the level of quantitative easing or adjust its forward guidance if the government shutdown began hurting economic growth significantly:

“Both those options would be options that if the economy were not growing as fast as we wanted that we could consider. I think we should keep all options on the table until we see what actually happens and how the data comes in. I think the Chairman is exactly right that if the economy takes a big hit from what’s happening with fiscal policy or some other shock that we’re not anticipating right now that monetary policy should remain accommodative and we should use whatever tools that we have at our disposal to make sure that the interest sensitive sectors at least continue to grow appropriately.”

On whether the Fed could be flying blind due to the lack of data collected by the government now that it is shut down:

“For a data-driven policy you do need data. The government is not the only source of data that we get. For example auto sales comes from the private sector, we had the ADP report today so there are other sources of information that we can certainly look to, but it does hurt our ability to determine how the economy is growing without having things like GDP, unemployment, payroll employment numbers available. So I don’t think we’re flying blind but we are a little bit impeded if we don’t have all the kinds of data that the government is normally producing.”

Video for viewing here.

Fox Business Network

Disclaimer: This page contains affiliate links. If you choose to make a purchase after clicking a link, we may receive a commission at no additional cost to you. Thank you for your support!

Be the first to comment

Leave a Reply

Your email address will not be published.


*

This site uses Akismet to reduce spam. Learn how your comment data is processed.