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MNI POLICY: Rosengren Says No Need For Fed To Clarify QE Yet

(MNI) WASHINGTON
WASHINGTON (MNI)

The Federal Reserve is no hurry to adjust QE because that could only provide modest benefits with longer-term Treasury yields already quite low, Boston Fed President Eric Rosengren said Wednesday.

"It's quite appropriate to take our time and figure out how best to utilize that tool as the Fall progresses," he said, adding there is no near-term need to clarify interest-rate guidance. If the economy takes a turn for the worse then the Fed can rely on its 13(3) facilities or purchase more, he said.

"Even if we purchase lots of securities, the furthest we could push down the (10 year) Treasury rate is 70bps points to get to zero," he said. That is a very different situation than after QE was used through the global financial crisis, he said.

"It is very helpful to do quantitative easing," Rosengren said. "But I think the amount of progress we can make by just purchasing more at this stage is also fairly limited."

"The emphasis ought to be on the short-term rates," said Rosengren.

GUIDANCE CLARITY

Investors parsing the new rates guidance should focus on the idea it will take much longer than past recoveries to meet the dual mandate goals, and not focus on exactly when rate liftoff will occur. The timing could be so long that the membership of the FOMC could change whatever consensus may exist today, he said.

"What's clear from the SEP is this is a long way off," Rosengren said in Q&A remarks to the Boston Economics Club. "But to be honest we'd be lucky to get to 2% inflation within that 4 year period [in the SEP], particularly if my forecast is correct."

"In the near-term, being the next year or two, I don't think that we need much more clarity than what we've provided," he said. "Providing clarity now when we are so far from our goals and objectives probably doesn't serve a useful purpose."

MNI Washington Bureau | +1 202-371-2121 | evan.ryser@marketnews.com
MNI Washington Bureau | +1 202-371-2121 | evan.ryser@marketnews.com

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