NEW YORK – Despite signs the economic recovery continues to strengthen, monetary policy remains “appropriate,” Federal Reserve Bank of Boston President and Chief Executive Officer Eric S. Rosengren Said Friday.
“There will be a time when these aggressive actions need to be reversed, but first we need to get the economy on a much more solid footing,” he said at the New England Mortgage Expo, according to prepared text of his remarks, which were released by the Fed.
“However, it is important not to lose sight of how much excess capacity remains,” Rosengren said, warning that a return to full employment could take “at least four years.” Also, “measures of core inflation will remain well below 2 percent over the same period.”
The U.S. needs “a sustained period of the economy growing well above its potential – not just for a few quarters," Rosengren said.
“However, once the economy has significantly improved, both fiscal and monetary policy will need to be much less accommodative,” he said. “Getting this balance right will be one of the main policy challenges over the next several years. I am confident that the Fed’s Federal Open Market Committee (FOMC) will meet the challenge.”
The fragile housing market is a risk to the economic recovery. “Residential investment, consumer durables, and services related to housing will be less robust than is usual in many recoveries, thus playing a role in what I think will be only a gradual improvement in the economy and employment,” he said. “To put it plainly, these housing-related headwinds are part of why I do not expect growth greater than 4%. And while 4% is not terrible, at that rate it will still take a very long time to get back to full employment.”
He noted, “State and local governments remain significantly challenged by the aftershocks of the financial crisis and recession. And many state and local governments continue to have both short-run and long-run fiscal challenges.”
Deficits of must be addressed and “painful” choices will need to be made.
