BOSTON The "nonconformist" behavior of the U.S. economy over the last seven years remains a challenge for policymakers trying to determine whether low growth and low inflation are now a permanent state of affairs, Boston Federal Reserve President Eric Rosengren said on Friday.
In remarks prepared to open a two-day economic conference, he said that disappointing rates of growth, coupled with things like high saving rates and lower labor force participation could mean the country's economic performance has changed for good.
Seven years since the recession ended, economists are still trying to determine "whether firms and households have changed behavior in ways that are likely to be more permanent than
transitory, whether slow growth in productivity is transitory or permanent, and whether recent trends in personal saving behavior are likely to persist well into the future," Rosengren said.
The answers will shape whether officials at the Fed and other central banks can expect a gradual return to higher interest rates, higher growth and more normal monetary policy, or whether central banks will have to keep nontraditional tools in hand and be prepared "to address any emerging risks to the current recovery."
Rosengren did not address current monetary policy in his prepared remarks. Fed Chair Janet Yellen is due to address the conference on Friday afternoon.
Rosengren was among three policymakers who dissented in favor of raising rates at the September Federal Open Market Committee meeting.
His remarks on Friday largely posed questions to conference members including top Fed and academic economists. But those questions emphasized just how much the U.S. and world economies may have changed.
The fact that 10 year Treasury yields remain near or below zero on an inflation adjusted basis, Rosengren said, "suggests a lack of confidence in U.S. and global growth prospects, and in the ability of policy authorities to offset weak growth."
(Reporting by Howard Schneider; Editing by Chizu Nomiyama)