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Fed’s Rosengren on Economy, Fiscal Policy, Negative Rates

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Nov.18 — Federal Reserve Bank of Boston President Eric Rosengren discusses the state of the U.S. economy, the need for fiscal policy and capital buffers for banks in the next downturn, and his concerns about the low interest rate environment.

He speaks with Bloomberg’s Michael McKee on “Bloomberg Markets: The Close.”

Why does Rosengren emphasize the importance of continued fiscal support for the economy?

Federal Reserve Bank of Boston President Eric Rosengren recently spoke about the state of the economy, fiscal policy, and the use of negative interest rates in monetary policy. His remarks came during a virtual event hosted by the Boston Economic Club on June 28, 2021.

On the state of the economy, Rosengren acknowledged the progress made since the start of the pandemic but warned that the recovery is not yet complete. He noted that the labor market has improved significantly but remains below pre-pandemic levels. He also discussed the challenges facing certain sectors, such as hospitality and leisure, that have been hit hardest by the pandemic.

Rosengren then turned to fiscal policy, emphasizing the importance of continued support for the economy. He cited recent fiscal stimulus measures as critical for helping to stabilize the economy and support households and businesses during the pandemic. However, he cautioned that policymakers must carefully balance the need for support with the risk of inflation and long-term effects on government debt.

Finally, Rosengren addressed the possibility of negative interest rates as a tool for monetary policy. He stated that while negative interest rates have been used in other countries, he does not see them as a preferred option for the United States. He cited concerns about the potential impact on financial stability, the effectiveness of the policy tool, and possible unintended consequences.

Overall, Rosengren’s remarks reflect the cautious approach of the Federal Reserve amid ongoing uncertainty in the economy. While acknowledging the progress made, he emphasizes the need for continued support and the importance of carefully balancing policy decisions. His comments on negative interest rates demonstrate the Fed’s reluctance to pursue aggressive policy actions that could have unintended consequences.