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March 27. 2013 8:56PM

Boston Federal Reserve CEO, in NH, says money supply policies are working


ROSENGREN 

MANCHESTER - The president and CEO of the Federal Reserve Bank of Boston told a group of New Hampshire business leaders Wednesday that the Fed policies of expanding the money supply have been key to the economic recovery, and that the benefits of the policies far outweigh the potential downsides.

Eric Rosengren made the comments Wednesday in a presentation to members of the Business and Industry Association of New Hampshire and the New Hampshire Bankers Association at the New Hampshire Institute of Politics, Saint Anselm College.

Rosengren is currently a voting member of the Federal Open Market Committee, a committee within the U.S. Federal Reserve System that sets U.S. monetary policy, including key decisions about interest rates and growth of the U.S. money supply.

"The Federal Reserve's policy of open-ended purchases of mortgage-backed securities and U.S. Treasury securities - currently proceeding at a pace of $85 billion a month - has contributed importantly to the gradual improvement in labor markets that we have seen, despite the fiscal headwinds," he said. "The costs of these policies are outweighed by their benefits, and by the costs likely to result if we did not pursue them."

In response to critics of the Fed, who fear the expanding money supply will trigger severe inflation when the economy rebounds, Rosengren said the Fed has been aggressively pumping money into the economy for five years, with no sign of inflation on the horizon.

"The expansion of the Federal Reserve's balance sheet began in 2008 and five years later, we currently have a PCE (personal consumption expenditures) inflation rate of 1.2 percent, well below our 2 percent target," he said. "As the years have passed, and inflation has remained stable, this criticism has become more muted."

He also defended the Fed's policy of maintaining historically low interest rates against criticism that such low rates threaten financial stability by encouraging investors to seek higher yields through more risky investments. Despite a historic run-up in the stock market, he said, stock prices are not out of line with corporate earnings, and housing is recovering at a reasonable rate that does not suggest rampant speculation.

"The economy continues to improve, but at a painfully slow pace," he said. "Actions taken by the Federal Reserve to speed up the pace of the economic recovery seem to be having the desired impact. Interest-sensitive sectors are growing more rapidly, asset markets are returning to pre-crisis levels, and economic forecasters are expecting continued improvements over the next several years."

dsolomon@unionleader.com



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