May 30, 2012 / 8:53 PM / 5 years ago

Fed's Rosengren: further easing 'appropriate, necessary'

WORCESTER, Mass., May 30 (Reuters) - The U.S. Federal Reserve should move to boost weak economic growth and trim overly high unemployment by pushing down borrowing costs still further, a top Fed official said on Wednesday.

"I believe further monetary policy accommodation is both appropriate and necessary," Boston Fed President Eric Rosengren said in remarks prepared for delivery to a meeting of the Worcester Regional Research Bureau.

And if Europe's debt crisis worsens or U.S. lawmakers fail to reach a budget agreement and send the domestic economy over a "fiscal cliff," Rosengren warned, "more aggressive actions would certainly be warranted."

Rosengren's full-throated call for more monetary easing puts him at odds with most of his colleagues, with just one other top Fed official, Chicago Fed President Charles Evans, calling publicly for more policy easing in recent months.

The Fed has kept interest rates near zero since December 2008, and the central bank projects it will need to keep them there until late 2014 to nurse the weak recovery.

But after buying $2.3 trillion in long-term securities to push borrowing costs down after the financial crisis, Fed Chairman Ben Bernanke and several other influential Fed policymakers have more recently expressed support for further bond buying only if the economy worsens appreciably.

Still others, including Minneapolis Fed President Narayana Kocherlakota, want the Fed to begin raising rates again as early as this year.

Rosengren's aggressively dovish stance emerges from an economic outlook that is markedly more gloomy than many of his colleagues.

The Boston Fed president on Wednesday forecast economic growth of 2.3 percent this year, slower than the majority of his policy-making colleagues, who in April saw growth of 2.4 percent to 2.9 percent.

He expects 1.7 percent inflation, lower than any of his colleagues' forecasts in April.

And Rosengren's view that unemployment will still be at 8.1 percent in the fourth quarter likewise puts him on the pessimistic end of the scale.

"Given my expectations of only modest growth, no improvement in the unemployment rate, an inflation forecast below 2 percent, and significant downside risks to the forecast, I believe monetary policy should remain accommodative at this time and indeed that we should be looking for ways that monetary policy can foster more rapid growth, to bring down the unemployment rate more quickly," he said.

Rosengren, who rotates next year into a voting spot on the Fed's policy-setting panel, made clear that his call for more monetary easing is aimed at keeping high unemployment from becoming engrained in the economy.

Some Fed officials have suggested the lofty jobless rate is driven largely by structural factors like mismatch between employer needs and employee skills, limiting the impact of any potential monetary easing.

Rosengren took square aim at that view, arguing that the bulk of the problem is not structural, but lack of demand, and therefore can be helped by monetary policy.

"Furthermore, my desire to stimulate more growth now is partly to prevent the structural problem from becoming more severe because the economy did not re-employ workers more quickly," Rosengren said.

Rosengren said his forecasts are contingent on Europe muddling through its debt crisis and U.S. lawmakers avoiding the so-called fiscal cliff -- a raft of tax hikes and spending cuts set to kick in at the start of 2013 -- that could otherwise send the United States back into recession.

But even absent such events, there is scope for the Fed to do more, he said.

"The U.S., like many other countries, needs to facilitate a more rapid recovery, and monetary policy is one important tool with the potential still for encouraging faster growth," Rosengren said.

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