Fed policy needs to remain accommodative since it has failed to achieve its dual mandate, Federal Reserve Bank of Boston President and Chief Executive Officer Eric S. Rosengren said Tuesday.
"Continued monetary accommodation is absolutely appropriate and indeed needed as long as we are projected to miss on both elements of the Fed's dual mandate, inflation and employment," Rosengren told the Greater Providence Chamber of Commerce Policy Forum, according to prepared text released by the Fed.
Unemployment, he said, remains "unacceptably high" while "inflation is undershooting the Federal Reserve's 2-percent target."
Rosengren supported the move to using benchmarks rather than dates to guide on future policy action, and noted that "interest-sensitive sectors have been responding to accommodative policy, and we should all continue to encourage a quicker recovery in those sectors. If we were able to see construction and durable-goods production return to a more normalized share of the workforce, it would have a meaningful impact on potential employees in those interest-sensitive sectors and also on the broader national labor markets."
The fiscal cliff threat forced businesses and households to defer decisions until there is "more clarity on the fiscal outlook," and that may have happened. "The national fiscal uncertainty cast a shadow on the economy, but it seems there have been some signs of underlying strength," Rosengren said.
"In all likelihood, these deferrals result in part from uncertainty over national fiscal policy, as well as from the impact of fiscal austerity that has already taken place - particularly at the state and local government levels," he added. "If some of the 'headwinds' from fiscal austerity discussions here and in Europe abate, we should begin to see growth come in at a pace that is above the economy's long-run potential growth rate. Such growth would bring about both economic expansion and improvements in labor markets."
But, he said, he expects economic growth at "its potential level" in the first half of this year, with near 3% growth in the last half, "assuming that headwinds from fiscal imbalances around the world are not resolved in economically disruptive ways."