While last week's action by the Federal Open Market Committee should speed economic growth and a return to full employment, it may take years for the latter to be accomplished, according to Federal Reserve Bank of Boston President and Chief Executive Officer Eric S. Rosengren.
But, monetary policy must be backed by fiscal policy, he said in prepared text of a speech Thursday. "It is important to note that significant fiscal policy mistakes, such as an unlikely failure to address the looming 'fiscal cliff' in the U.S., would have effects on economic growth that would be difficult to fully offset with monetary policy."
He said the addition accommodation "should contribute to a faster economic recovery and a more rapid improvement in labor markets than we would have seen in their absence. However, I want to be careful not to appear to promise too much, as there are limits to the effects of monetary policy. Even with these actions, and assuming no additional negative shocks domestically or internationally, it will still be several years before we are likely to return to full employment."