The loose monetary policy being pursued by the Federal Reserve has generated at least one internal critic, Federal Reserve Bank of Boston President Eric Rosengren. The Boston Fed chief is worried that measures taken to push the American economy toward 2% could risk distorting financial markets. Christopher Condon reports for Bloomberg:
Federal Reserve Bank of Boston President Eric Rosengren warned his fellow monetary policy makers against putting financial stability at risk in pursuit of higher inflation.
“I don’t think there’s a big cost to being a little below 2%,” Rosengren told Bloomberg Television in an interview Monday, referring to the central bank’s inflation target. “I’d rather be higher, but I wouldn’t want to distort financial markets to get that outcome.”
The Fed cut interest rates last month for the third time this year to preserve a record-long U.S. expansion and signaled that policy was now probably on hold if the economy stays on track. Rosengren dissented against all three cuts, preferring to keep policy unchanged.
U.S. growth has been dented this year by a weakening global economy and business uncertainty stemming from the trade dispute with China. Unemployment, though, remains near a 50-year low, helping to shore up consumer spending, which accounts for around 70% of the national economy. Inflation remains below the Fed’s 2% goal.
Rosengren agreed that the U.S. economy remains healthy and on track to grow at its long-run potential, around 2%.
“Despite the tariffs and the volatility that’s occurred in some of the financial market movements, we haven’t ended up in a very bad place,” he said.
The Boston Fed chief said the rate cuts concern him because the central bank will now have less room to lower rates in the event of a more serious slowdown. He also worries about provoking asset bubbles and market instability.
“Is this the stage of the cycle where you want to have a little more push to financial markets?” he said. “I would argue not.”
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