Fed should avoid zero lower bound, Rosengren says

With interest rates expected to remain low by historical standards, Federal Reserve Bank of Boston President Eric Rosengren said Wednesday, the Fed should consider ways to keep short-term interest rates from hitting zero.

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Eric Rosengren, president and chief executive officer of the Federal Reserve Bank of Boston, speaks during a meeting with a coalition of activists on the sidelines of the Jackson Hole economic symposium, sponsored by the Federal Reserve Bank of Kansas City, in Moran, Wyoming, U.S., on Thursday, Aug. 25, 2016. Federal Reserve Vice Chairman Stanley Fischer and 10 of his colleagues met Thursday with a coalition of activists to hear complaints about the U.S. central bank, in a first-of-its-kind event on the sidelines of an annual policy retreat in Jackson Hole, Wyoming. Photographer: David Paul Morris/Bloomberg

One way to do that, he said, is to be more flexible “with the inflation target, perhaps focusing more on an inflation range than a specific number,” he said in a speech in Washington, D.C., according to prepared text released by the Fed. “One might allow the inflation target to rise within the range during periods of low real rates, thus providing more room for the funds rate to fall during an economic downturn.”

He added, “Such a change in the monetary policy framework is something that should be considered, along with a careful assessment of the potential costs and benefits. However, if the monetary policy framework is not changed, policymakers should look at other policy tools that can more effectively reduce the severity of recessions.”

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Monetary policy Federal Reserve Federal Reserve Bank of Boston FOMC
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