Boston Fed's Rosengren Calls for Fed Bond Buying

August 7, 2012 03:37 AM

via a special arrangement with Informa Economics, Inc.

Focus on potential action rising with camps staking positions

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Boston Fed President Eric Rosengren said the Federal Reserve should embark on an aggressive, open-ended bond buying effort to help bolster the US economy. Rosengren made the remarks in an interview with the Wall Street Journal.

Rosengren is not currently a voting member of the Federal Open Market Committee (FOMC) but does take part in the discussions at FOMC sessions along with the 11 other district bank presidents.

The jobs data from July which buoyed markets didn’t necessarily get the same read from Rosengren, particularly the decline in the percentage of the population that is employed – it is at 58.4 percent and is below where we started 2012. "That calls for a more substantive action than we've taken to date," he said. "We need a pro-growth monetary policy." Treading water, he added, was "not sufficient."

Perhaps importantly, Rosengren’s view is that the Fed is missing the mark on both of its mandates -- maximum sustainable employment and price stability.

As for QE3, Rosengren backs an effort "at least of the magnitude that we’ve had before." He also favors no end date or a fixed amount for any such bond buying.

Rosengren also wants to see the 0.25 percent interest rate the Fed pays banks for cash left in reserve, arguing "It seems like we're paying too much for people to hold reserves," he said.

While Rosengren’s view is that the Fed needs to act, there are others on the Fed that disagree. Dallas Fed President Richard Fisher told Reuters in an interview that he did not support additional monetary stimulus based on the view that he doubts it will trim the unemployment rate and laid blame on the inaction by Congress on the fiscal policy front as the key factor. "We have hit a wall and that wall is called Congress," Fisher said.

Comments: This confirms the separate camps that exist on the FOMC and does not indicate there has yet been a shift in the so-called "middle-of-the-roaders" who are seen as key to any policy shift by the Fed. Also, Fed Chairman Ben Bernanke makes prepared remarks today and he will entertain questions after his initial remarks. That could bring to light some additional commentary on what the Fed is thinking, particularly in the wake of the July Employment report. In addition, Bernanke could be asked about the FOMC session that ended Aug. 1 which could also provide markets some fodder relative to the existing Fed mindset.


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


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