NEW YORK – The economy is still weak and recovery showed only a brief flash of adequacy, so the U.S. must keep monetary policy accommodative until labor markets improve, Federal Reserve Bank of Boston President and Chief Executive Officer Eric S. Rosengren said Wednesday.
While most observers said the recovery hit a “slow patch” in the first half of the year, Rosengren said, “I am not sure that phrase is quite right.” He explained, the term “suggests strong growth that has been temporarily interrupted by some sort of headwind or shock, like natural disasters or extreme weather that crimps economic activity. I would instead describe the past two years as a consistently weak recovery, interrupted by a period of stronger growth. Let me add that a weak recovery like we have seen is, unfortunately, typical of recoveries after a financial crisis.”
But, he sees stronger growth in the third quarter with second half GDP between 3.0% and 3.5%. “While this represents an improvement from the first half, it is still quite slow given the amount of slack in the economy, and slower than I had expected at the beginning of this year,” he told a forum at Clark University, according to prepared text of his speech, which was released by the Fed.
Last week’s employment report was termed “dismal” by Rosengren. He noted “significant downside risks” remain since the economy is improving very slowly.
“With fiscal austerity slowing down economies both here and abroad, it will in my view be important to maintain sufficiently accommodative U.S. monetary policy so that national labor market conditions can improve,” he said.
