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Fed Chief For

January 11, 2019

By Colin A. Young

State House News Service

BOSTON -- The head of the Federal Reserve Bank of Boston on Wednesday advocated for the nation’s central bank to be patient and wait out some of the recent volatility in the markets before charting a new course on monetary policy.

Speaking to the Boston Economic Club to give his annual economic outlook, Boston Fed President and CEO Eric Rosengren said it is critical to determine whether recent financial market sentiment -- the Dow Jones Industrial Average declined 12.5 percent from October to December -- is too pessimistic, too optimistic or about right. At the same time, economic forecasts are predicting growth “somewhat above potential,” he said.

“My own assessment is closer to the relative optimism of many economic forecasters than it is to the more pessimistic outlook suggested by recent declines in financial markets,” Rosengren said, according to his prepared remarks.

The Fed chief said he thinks the economic outlook is “actually brighter than the outlook one might infer from recent financial market movements” and that real growth will “remain solid enough to tighten the U.S. labor market somewhat” in 2019.

“Economic growth was quite strong in 2018, and some of that strength is likely to carry forward,” Rosengren said. “Furthermore, the engine behind the good growth level in 2018 was the consumer. There are many reasons to believe the consumer is still engaged and willing to spend -- employment growth remains strong, wage growth rates are rising, the savings rate is high, and consumer confidence remains high by historical standards.”

With the contrast between the pessimism reflected in the markets lately and mostly optimistic economic forecasts in mind, Rosengren on Wednesday argued for the Federal Reserve to hold off on adjusting monetary policy or dictating a future course until there is more available data to contribute to the decision.

“Yet given the reduced certainty I have about my forecast -- in light of the slowing abroad and volatile financial markets -- in my view, the appropriate stance for monetary policy is, for now, to not have a bias on moving policy in either direction until there is greater clarity around economic trends here and abroad,” he said. “The Federal Reserve’s current monetary policy seems appropriate for now, and can patiently observe future economic developments.”

Rosengren’s message was echoed Wednesday by Charles Evans, president of the Federal Reserve Bank of Chicago. According to the New York Times, Evans delivered a similar speech in Illinois on Wednesday in which he said, “I feel we have good capacity to wait and carefully take stock of the incoming data and other developments.”

Rosengren and Evans are both current members of the Fed’s Federal Open Market Committee, which votes on key monetary policy decisions like whether to raise or lower the Fed’s benchmark interest rates.

After the committee raised the benchmark rate into a range between 2.25 and 2.5 percent at its December meeting, Fed Chairman Jerome Powell suggested the central bank expected it would raise rates twice in 2019.

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