By Steven K. Beckner

(MNI) – Boston Federal Reserve Bank President Eric Rosengren said
Friday the Fed should be looking for further ways to stimulate the
economy and in particular endorsed additional purchases of mortgage
backed securities.

Calling the recovery “painfully slow,” “anemic” and “tepid,”
despite recent improvements, Rosengren called for further monetary
easing, supplemented by policies targeted to address hard-hit housing
and small business sectors, in remarks prepared for delivery at an
“Economic Summit and Outlook” event in Hartford, Connecticut,

Rosengren is not a voting member of the Fed’s policymaking Federal
Open Market Committee this year, but he will be contributing to the
FOMC’s federal funds rate forecast for the first time at the Jan. 24-25
meeting as part of the quarterly Survey of Economic Projections.

He said he expects GDP to grow between 2% and 3% this year and
that, therefore, labor market improvement will be “very gradual.”
Meanwhile, he foresaw inflation staying below 2% — the top end of the
Fed’s implicit target range — for “several years.”

“With inflation expected to remain below 2%, and unemployment and
underemployment so high, I believe it is important for the Federal
Reserve to continue considering ways to promote stronger growth and
hasten what is a painfully long, slow recovery and adjustment time in
the economy,” said Rosengren.

He said the low interest rates the Fed has already sponsored have
helped bring down debt service payments, enabling households to improve
their balance sheets.

But he said “more can be done to facilitate this process of
adjustment — including tweaks to Government Sponsored Enterprise (GSE)
mortgage programs and, potentially, expanding the purchase of mortgages
by the Federal Reserve to keep mortgage rates low during a time of great
difficulty in housing markets.”

Later, Rosengren reiterated the theme: “Further purchases of
mortgage-backed securities would in my view help provide a more rapid
recovery in housing, by reducing the costs of refinancing or purchasing
new homes.”

And he went on to suggest the need for additional monetary easing
in broader terms. “Given the low inflation rate and weak labor markets
that are both likely to persist this year, I believe the Federal Reserve
should continue to explore ways to promote more rapid recovery through
stronger growth.”

Rosengren added that the Fed “has a variety of tools to consider as
we try to promote faster economic growth — including communicating in
different ways the likely future path of the economy and the
implications for interest-rate policy (as was mentioned in FOMC minutes
released this week), and considering additional large-scale asset
purchases.”

He said “the economic data have been improving somewhat, relative
to what we were seeing in the summer.” But “demand in the economy is not
sufficiently strong for firms to employ more workers full time. Labor
demand simply remains too weak.”

One “very concerning dynamic,” is that it has become much harder to
start a small business because of the decline in the value of real
estate, which many entrepreneurs use as collateral to get start-up loans
and because of a tightening of credit for small business, he said.

Rosengren said “policymakers can and should continue to look at
ways to better target fiscal and monetary policy to address the housing
and small business financing problems we are seeing in this recovery.”

“I believe that the continuing difficulties compel us to think
creatively and proactively about ways to return the economy to full
employment,” he added.

** Market News International **

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