MNI POLICY: Fed's Rosengren: No Need For Further Rate Cuts

By Evan Ryser

     NEW YORK (MNI) - Boston Federal Reserve President Eric Rosengren said

Tuesday the U.S. economy is "quite solid" and monetary policy is well positioned

for 2020 barring an unexpected shock.

     "This is a good time to patiently assess the economy. In the short run, I

do not see a need for additional policy easing unless there is a material change

to the forecast," Rosengren said at a gathering of the The Forecasters Club of

New York.

     In his first public remarks since the Fed's decision to hold rates steady

last week in a band of 1.50% to 1.75%, Rosengren said that given the three rate

cuts in 2019 and the lags of monetary policy "it is appropriate to take a

patient approach to considering any policy changes."

     He dissented at the FOMC's July, September and October meetings when the

committee cut rates by a quarter point, each time preferring rates to be set

higher instead. 

     The economy, Rosengren said, is performing well with strong labor markets.

He noted unemployment is at a 50-year low job and growth of 266,000 was "a nice

surprise, particularly for retailers hoping for strong retail sales."

     Looking to 2020, Rosengren expects core PCE inflation to remain close to

the Fed's 2% target and unemployment to fluctuate around its current rate of

3.5%.

     --CONSUMER STRENGTH TO CONTINUE

     The economy, Rosengren said, has grown at close to a 2% annual rate over

the past two quarters, as strength in households has offset weaknesses in

business investment. That pattern is likely to continue given recent job

creation and increases in personal income and wealth.

     "The consumer is well positioned to spend," Rosengren said. "Plentiful jobs

and growth in income have provided improvements in confidence and bode well for

holiday sales and beyond." 

     --RISKS ABATED 

     Rosengren emphasized that with accommodative fiscal and monetary policy

"the likelihood of a recession in 2020 is relatively low."

     "However, a low probability does not mean it cannot happen, and certainly a

negative shock from abroad or a significant flare up in trade disputes could

change the outlook significantly," Rosengren said. 

     The global economy still faces downside risks. "Yet, some of the concerns

surrounding trade and global growth that were elevated earlier this year appear

to have abated somewhat."

     Rosengren said an inverted yield curve may be less predictive in current

circumstances than years prior, and sub-50 readings of the purchasing managers'

survey from the Institute for Supply Management have not been a reliable

predictor of a recession. 

     "One could argue that the current reading has the potential to be another

such false signal, given current events. In particular, since tariffs are

particularly focused on traded goods, it is not surprising that manufacturing

has been weak."

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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