Fed's Rosengren: Already Signs Fed Action is Working
Federal Reserve Bank of Boston president Eric Rosengren weighs in on economic growth.
- Duration 8:14
- Date Sep 20, 2012
Federal Reserve Bank of Boston president Eric Rosengren weighs in on economic growth.
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Boston Federal Reserve Bank president Eric Rosen -- saying the stimulus plan by the Central Bank is already benefiting the economy are let's -- up soon necessary about all this -- Peter Barnes is an exclusive interview on fox business and articulate Peter.
But right -- -- and Eric Rosenberg enjoys this joins us now he just gave a speech this morning called the avoiding the great stagnation.
And talking about all the extraordinary steps that the Fed took last week to try to.
Get economic growth going more and he is also going to become a voting member of the FOMC.
This coming January so we pay particular attention to what he has to say and president -- and thanks for joining Fox Business.
But so last week the FOMC announced it would start buying forty billion dollars worth.
A mortgage backed securities.
On an open ended basis.
Do help try to drive down.
Interest rates particularly mortgage interest rates it to help the -- housing market and help the economy in general.
Based on your outlook for labor markets how long do you expect the open ended MBS.
So we've seen some.
Improvement and some economic indicators but we want growth to be much faster than the 2% that we been averaging in the recovery.
And -- so it's completely dependent on what kind of economic outcomes that we have.
What what do you hope that this will do we saw in the Fed Chairman Bernanke's speech in Jackson Hole.
He said that that that the record of previous asset purchase programs had created about two million jobs increase GDP by about 3%.
What can we expect him what are you hoping for out of this next phase of quantitative easing.
So I'm hoping to get something roughly in the ballpark of the estimates the chairman provided at the Jackson hold conference.
There are a variety of ways that it gets transmitted through the economy when we take an action like this.
We've seen some improvement in the stock market we've seen mortgage rates come down we've seen rates on other types of long term assets go down.
That's probably what we're expecting to find and that's what we've seen during previous periods where we've taken these kind of actions that you see job creation on the scale of you know.
Hundreds of thousands of additional jobs say over the next year or two and what -- -- what are you looking for.
I'm expecting to get.
A couple of tenths off the unemployment rate -- to do what we would have otherwise gotten in each year that we continue this program.
That seems like a small amount but actually in terms of the number of people it's a fairly significant number of people and over a broader period of time -- can have reasonable impact on the economy.
But I would highlight that this by itself doesn't get us the full employment quickly.
There's nothing that we can do to quickly get the full employment we currently have a point 1% unemployment were far from where we want to be unfortunately that's gonna take time.
I think this action gets us there faster than if we have them.
And a speech this morning you talked about full employment probably being around five to 6% you said for review.
Probably closer to 5%.
We are a long way from that -- mean that.
-- it sounds like you have a lot of work to do here.
It's likely to be -- years before were in that room.
Eight polled by Reuters -- bond strategists estimated.
That that the Fed could end up buying.
800 billion dollars worth additional bonds out here.
Is that possible.
Will it take that much.
Those kinds of purchases due to produce the results that you're looking for.
It is possible but it's very hard to predict there a lot of uncertainties that we're currently facing.
We don't know what's gonna be happening in Europe there's been a slowdown in China we don't know how long that will persist.
People -- worried about the fiscal cliff all those things could cause us to do -- longer than we're currently anticipating.
So it is open ended the objective there is to get the right economic outcome.
Which is improvement in labor markets that are both substantial and sustainable and that requires getting growth faster than what we've been seeing faster than 2%.
Back to get the Fed's balance sheet which is currently just shy of three trillion.
That cut those kind of purchases to get it up to four trillion potentially mean.
Is that a concern -- and how do you unwind from that long term.
So it is an expansion of the balance sheet.
That is exactly what we're expecting.
I do think we have the tools to exit when an exit becomes appropriate.
Mean the gold this isn't raised in terms of amounts that we're buying or and dates it's phrased in terms of getting economic outcomes.
That is the purpose of doing this is getting a better macroeconomic -- and I think that's what we should be focused what you're doing this in conjunction with a current.
Bond buying program Operation Twist.
Total volume right now is about 85 billion dollars a month as this as the FOMC announced last week.
But Operation Twist expires at the end of the year in all your friends in the bond markets -- want to know.
What happens then you lose in theory half of your firepower.
You'll be a voting member January would you vote to.
To start buying additional assets.
To help keep keep.
The strength of this program going.
-- after December 31.
We'll have to evaluate at the end of the year we're we're -- there's a lot that's gonna happen at the end of this year with the fiscal issues that have to be addressed.
If the economy's going strongly that we may not have to do additional purchases -- in terms of treasury securities if we're not getting the kind of outcome that we were hoping for.
We may have to do more so it's completely conditional.
On the economic environment we see at the end of the year.
-- for you personally you would be obviously open to that I would certainly be open to doing more if that's what the economy record as you know there's been some criticism.
The announcement last week there are folks that -- say hey you know all right.
Interest rates are already very low historically.
Mortgage rates historically low that this isn't really going to do that much to help economic growth.
What he said.
I think it will have a material impact and I think -- a number of ways that it can happen -- one is in the housing market rates are low we're starting to see in many markets including the Boston market prices are starting to go up.
Do think that the Federal Reserve program has only gonna last for a fixed period of time.
You wanna captured well interest rates are low and prices are going up so there's a cost to delay same thing at your hospital or university that's thinking about.
Making large build purchasing a large building.
You bring that up when you think that interest rates are gonna stay low for short period of time and they start rising as the economy improve -- -- -- counting up.
That's exactly the kind of behavior we're hoping for -- But on mortgages for example right now -- about three and a half percent.
Critics say well okay -- get it out of three and a quarter.
If we look at recent action in the bond market could be headed there.
That is a big enough that big enough to pull people off the sidelines plus you have.
Mortgage processing issues backlogs -- banks lack of staffing.
People with a underwater mortgages who may not be able to.
Refi if they want to -- what about the structural process impediments.
To helping the housing market.
Let me take the first part on the housing I think we already are seeing improvements on the housing market.
So I think this is exactly the time that we actually want to encourage people to say I'm gonna decide to do it now and not wait any longer.
Hopefully we'll actually see that over the next five or six months.
To the extent that they're having problems processing -- mortgage processing paper that's actually a good side that's an indication that volumes are up and that the programs having an effect.
So it may take longer to get all the processing done.
-- that means that there are more mortgage applications that is a positive sign for the housing market started to have some improvement.
President -- please stay with us dot thank you for joining us for the -- part of our broadcast but now we're gonna continue.
Live on foxbusiness.com.
-- -- organist dream more of our interview here now with with the president -- -- we're gonna ask about the state of the economy.
And about money market funds which is one of his.
Big issues the safety of money market funds so we'll get a couple seconds here that click -- if you want to keep watching but back to you.