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Federal Reserve Bank of Boston President Eric Rosengren on the outlook for inflation, interest rates, growth and the future of money-market funds.
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President -- and then there's a lot of discussion about.
It's.
Inflation and the actions that you took last week.
And whether or not this could sow the seeds for future inflation.
What the what level of inflation the Fed might tolerate going forward in order to help the economy grow.
What what is the target is 2%.
That we've heard.
We saw some suggestions last week that the Fed may tolerate inflation over the target for a period.
To make sure that the economic recovery is is is gaining traction.
-- 2% to target it's not a ceiling.
So that means sometimes will be a little bit above sometimes will be a little bit below.
Currently the PC inflation is at one point 3% -- seven tenths below where target is.
To their times -- will be below or above part of that's food and energy shocks can go in both directions.
And end up not being right at the 2% there were looking for.
And it can take some time before we hit the target that we actually want ahead.
But I think that we should have a tolerance for being a little bit -- over a little bit below depending on the circumstances.
You're telling Charlie Evans that -- Federal Reserve Bank of Chicago says the Fed should not tighten.
Up until -- inflation.
It's 3% could you tolerate 3% inflation is that okay so 2% the target and it's not that you would expect to get 3%.
Could you have 3% as a result of royal shocker of the things that's.
It's certainly possible that's not what I'm expecting and actually expecting that inflation will be quite well behaved.
And that will actually below the 2% target for most of the next three years.
Charlie Evans also says that he doesn't think the Fed should even think about tightening until unemployment is below 7%.
Do you agree and agree with that and if you look at the Fed's most recent forecasts from last week you don't.
But doesn't look like you're forecasting 7% -- below -- you know putting fourteen may be at the early.
I think we should continue -- this program until we get material improvement in the labor markets.
I think Charlie was talking about when we should do the lift off in terms -- we shouldn't raise the short term rates above zero.
And so right now our guidance is mid 2015.
I think that.
Around a 7% unemployment rate probably would be appropriate word that being around the time that we've been doing -- -- But it's not a trigger it's a threshold that's and we should be discussing whether or not it's appropriate to -- And that's just for the Fed Funds rate.
That's for the -- -- it would that be a trigger also for perhaps exceeding the quantitative easing then shrinking the balance sheet.
I think we'd be using different targets for those two activities so that we would presumably stop the -- -- purchase program before we started raising short term rates.
What you're.
Take on the current state of the economy right now -- -- you just turned in your forecast the last meeting but you continue to.
Look at the economy we saw some we've seen some nice housing numbers in the last a couple of days but.
And industrial production consumer spending looks a little -- And where does the recovery stand right now.
I think we're growing a little bit below 2% so my forecast would be for the second half this year -- getting roughly one and three quarters percent growth in real GDP.
I'm hopeful that next year will see stronger growth and we'll see something in the two and a half to 3% range.
That depends on not getting negative shocks from Europe China -- the fiscal -- But assuming we don't get bad outcomes there I think that this action has -- of the things that we're seeing.
Like the improvement in the housing market that you just talked about.
Perceive were providing the seeds for getting a little bit stronger growth than what we've seen.
Another might minutes of whom last week -- -- will be coming out shortly but can you give us a little preview -- I know that there was no chairman talked a lot about how carefully the Fed would weigh the costs and benefits of these different actions.
What was that discussion like in the meeting last week what was it heated heavy.
Thoughtful passionate.
-- Right I can't really talk about what's going on in the beating but I can talk a little bit about the cost that we have to think about so one of the causes inflation.
And that is something that we're very attentive to the look for signs of inflation actually is picking up.
We started our asset purchase program her serve -- expanding our balance sheet in the middle of 2008.
-- four years later we still haven't seen much of an increase in inflation so while that is a concern and we have to be watchful for.
I don't put much weight on the fact that we're gonna see much inflationary pressures over the next several years.
Really about a minute left I do want to get to this money market funds issue you've been.
Very concerned about the health of money market funds which had held a lot European Bank debt for example short term funding from them.
You've been critical of the industry but that the -- that the funds if you look at the composition of their holdings have been getting -- reducing their positions in Europe they've been hedging more.
What's your assessment of the money fund that is give -- money market funds that -- declared money market mutual fund.
What your assessment of their.
Health right now of their of the risks to them right.
I think they have changed the portfolio and some of the risks that I was concerned about six months ago were a year ago in terms of their European exposure.
They have brought down the risk in those exposures which I think is a very positive sign.
They're still structural issue that has to be addressed.
The money market funds are agreeing to provide a dollar for every dollar you put them.
-- they don't hold any capital and they do take risk.
So during times of stress that structures going to come under stress as well also I still think they're structural things that have to be done to the industry.
So we'll have to see if the SEC is able to do that.
And so far has not which has led to some speculation.
That the effect of the financial stability oversight council that at soc which includes the SEC chairman Bernanke Federal Reserve and other regulators.
Might.
If it if they don't see.
Something out of the SEC and they've all ahead all them.
There although regulators agree they want to see some progress that the SEC -- but that they don't there's been some speculation that they have sucked might declare money market funds.
Systemically.
Significant institutions and thus.
Subject to additional regulation.
Do you think that's a good idea.
The current structure of money market funds poses a financial stability issue.
We need to reduce their financial stability issue no one wants to repeat the kind of experience that we -- 2000.
I think we'll have to see what the best way to make sure that those financial stability concerns are appropriately addressed.
Caps -- maybe one direction to go but I think -- other directions as well I'm still hopeful the SEC maybe it will take further action.
Would -- to keep.
Adding that we're at a time unfortunately for for you and for us and -- thanks for joining Fox Business today and thanks for joining foxbusiness.com.
Her prison -- -- -- -- thank thank you.
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