Although large scale asset purchase programs may not be as effective as previously believed, Federal Reserve Bank of Boston President Eric Rosengren said Friday, “it is quite likely” that the programs will be needed in the future.
Since real rates are expected to remain depressed in the U.S. as a result of slow productivity and labor force growth, with the median long-term fed funds rate predicted to be 2.8%, Rosengren told the monetary policy forum, he believes the purchases will resurface, according to material released by the Fed.
“Almost all recessions have resulted in the Fed lowering nominal rates by much more than 2.8 percentage points,” he noted.
Rosengren said he “Agree[s] the evidence is consistent,” that large scale asset purchases have “some impact, of uncertain magnitude.” However, short-term rates are the preferred method of conducting monetary policy since that is “the better understood and tested way.”
Further, the Fed should avoid cutting rates to zero, and can accomplish that through fiscal policy, although politics could hamper that option.
Another suggestion he offered was altering the Fed's monetary policy framework. “I personally view inflation range with varying inflation target as promising,” he said.
Rosengren is not a Federal Open Market Committee voter this year.