May 02, 2016
This is the third in a series of profiles of the members of the Federal Reserve Board’s Open Market Committee [FOMC]. The profiles will focus on their writings, public statements, and voting records as members of the FOMC.
Since assuming office in 2007, Boston Federal Reserve Bank President Eric Rosengren has been considered one of the Fed’s more dovish members. Although he has recently lent tepid support to the idea of raising rates, Rosengren’s stances on quantitative easing (QE), the federal funds interest rate, the Fed’s dual mandate, and the 2 percent inflation target show that he has normally advocatedfor monetary stimulus.
Rosengren has been one of the most vocal and consistent supporters of the Fed’s QE programs. He has dismissed concerns that QE would lead to higher inflation, arguing that what it actually leads to is higher employment.[1,2] Moreover, Rosengren did not just favor QE at times when there was nearly complete consensus on the benefits of QE, but also supported it when the program was generating greater controversy. In an interview with CNBC in 2012, Rosengren called for “a quantitative easing program and one of sufficient magnitude that it has an impact.”[3] He said that the program should be “open ended” and that “We want a stronger economy, we want faster growth in the income and we want a labor market that has an unemployment rate…that’s clearly declining.”[3] In 2013, facing weak U.S. employment growth, Rosengren called again for a continuation of QE.[2,4] In an interview withMarketWatch, he stated that QE should be continued for “several years” due to the program’s effect on the labor market:
“Rather, our policies need to be consistent with achieving key goals like supporting Main Street’s more rapid return to full employment — and keeping away the extremely low inflation that characterized troubled economies like Japan’s in its ‘Lost Decade’ and moving toward the Fed’s 2% inflation objective.”[4]
Indeed, Rosengren’s only dissenting vote at any FOMC meeting since 2013 came when the Fed decided to begin slowing down its rate of asset purchases:
“Mr. Rosengren dissented because he viewed the decision to slow the pace of asset purchases at this meeting as premature. In his view, with the unemployment rate still elevated and the inflation rate well below the Committee’s longer-run objective of 2 percent, changes in the asset purchase program should be postponed until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate. He saw the costs of delaying action at this meeting as likely to be small relative to the gains from promoting a faster return of both elements of the Committee’s dual mandate to their longer-run objectives” (pg. 12).[5]
Even in 2015 – by which time Rosengren had stopped calling for new rounds of QE – he was still publicly touting the general benefits of QE and explaining how it had limited the harm done during the recession.[6,7]
Rosengren has generally been against raising the federal funds interest rate. As late as April 2015, Rosengren cited both low inflation and a weak labor market as reasons for not raising rates.[6,8] He partially reversed course in October, when he stated in an interview with the New York Times that he favored raising rates gradually.[9,10] However, even in that interview, Rosengren said that he did not favor raising rates as early as the October FOMC meeting.[9]
In April 2016, Rosengren received some criticism for saying that he would prefer higher interest rates.[11]
However, Rosengren’s statements were not a general call for higher interest rates – rather, he was only projecting a need for more than three 0.25 percentage-point increases over the next three years.[12,13] While Rosengren was not so dovish as to call for zero rate hikes, his projection was hardly hawkish. Moreover, he made it clear that he wanted the unemployment rate to continue dropping further, albeit not to the 4.0 percent unemployment rate from 2000:
“Rosengren said he favored pushing unemployment somewhat below 4.7 percent — his estimate of full employment — in order to pull more people back into the workforce.
‘Probing just how low the unemployment rate can fall before risking overheating in the economy can be beneficial for labor markets,’ he said.
That would go hand-in-hand with ‘a gradual normalization of interest rates,’ but not with the ‘the extremely shallow rate path’ envisioned by investors.”[12]
Rosengren also spoke out against a path of significant rate hikes in February 2016, stating that inflation would have to move back to 2 percent before he would completely shift away from his previous dovish stance.[14,15] This is consistent with the views Rosengren outlined in an October 2014 interview with CNBC; in the interview, he stated that we should begin raising rates when we are within one year of full employment and an inflation rate of 2 percent.[16]
Rosengren has expressed strong support for the Fed’s dual mandate of maximum employment and 2 percent inflation. He has argued that the dual mandate – as opposed to a single mandate regarding inflation – has led the Fed to pursue beneficial stimulus policies such as QE.[6,17] In a 2013 speech titled Should Full Employment Be a Mandate for Central Banks?, Rosengren even went so far as to argue that the employment mandate should be play a more prominent role in Fed decisions, stating: “the historical record shows that even this dual mandate central bank may have been a bit slow to place sufficient emphasis on unemployment deviations.”[17] He has often cited full employment and stronger wage growth as reasons for favoring monetary stimulus.[18,19,20] A 2013 New York Times interview with Rosengren indicated that Rosengren wanted to see at least 200,000 jobs added per month along with declining unemployment “before he would be ready to consider scaling back the Fed’s efforts to stimulate the economy.”[21]
For the other half of the dual mandate – the inflation target – Rosengren clearly views 2 percent as a target rather than a ceiling. In a speech in early 2015, Rosengren stated: “Significant undershooting of the inflation target should be treated with the same policy urgency as a significant overshooting.”[6] Rosengren has even said that the Fed should begin an open debate on whether 2 percent is too low an inflation target.[22,23]
Overall, Rosengren is clearly one of the Fed’s most dovish members. Although he has come out recently in favor of interest rate hikes, he has generally been in favor of monetary stimulus. Rosengren has a consistent track record of favoring quantitative easing, low interest rates, and full employment.
[1] Central Banking Newsdesk. Boston Fed’s Rosengren Parries Inflationary Fears. January 2011. Central Banking.
[2] Central Banking Newsdesk. US Non-Farm Payroll Stats Strengthen Case for More QE. April 2013. Central Banking.
[3] Dauble, Jennifer. CNBC Exclusive: CNBC Transcript: CNBC’s Steve Liesman Speaks With Eric Rosengren, Federal Reserve Bank of Boston President, Today. August 2012. CNBC.
[4] Robb, Greg. Easing Policy Could Be Extended: Fed’s Rosengren. October 2013. MarketWatch.
[5] English, William. Minutes of the Federal Open Market Committee: December 17-18, 2013. January 2014. Board of Governors of the Federal Reserve System.
[6] Condon, Christopher. Rosengren Says Fed Should Remain Patient Amid Low Inflation. February 2015. Bloomberg.
[7] Central Banking Newsdesk. Boston Fed’s Rosengren Flags Key Elements of Successful QE. February 2015. Central Banking.
[8] Saphir, Ann. Fed’s Rosengren: Conditions for Rate Hike Not Yet Met. April 2015. Reuters.
[9] Appelbaum, Binyamin. Q. and A. With Fed’s Eric Rosengren: Still Bullish on Economy.October 2015. New York Times.
[10] Pandey, Aveneesh. Boston Fed Chief Eric Rosengren’s Speech To Be Watched For Rate Hike Clues As Labor Market Strengthens. November 2015. International Business Times.
[11] Rosenfeld, Everett. Rosengren to Markets: You Have It All Wrong on Rate Hikes.April 2016. CNBC.
[12] Condon, Christopher. Fed’s Rosengren Says Market Is Too Pessimistic on Rate Path. April 2016. Bloomberg.
[13] Central Banking Newsdesk. Fed’s Rosengren Warns Against Exceeding Full Employment. April 2016. Central Banking.
[14] Robb, Greg. Fed Can Be ‘Unhurried’ to Raise Interest Rates: Rosengren. February 2016. MarketWatch.
[15] Spicer, Jonathan. No U.S. Inflation Progress, No Fed Rate Hikes: Rosengren. February 2016. Fiscal Times.
[16] Morganteen, Jeff. Don’t Expect Another Round of QE: Boston Fed’s Rosengren. October 2014. CNBC.
[17] Rosengren, Eric. Should Full Employment Be a Mandate for Central Banks? April 2013. The Federal Reserve Bank of Boston’s 57th Economic Conference: “Fulfilling the Full Employment Mandate – Monetary Policy & The Labor Market”.
[18] Central Banking Newsdesk. Regional Fed Presidents Express Fears Over Economic Recovery. July 2012. Central Banking.
[19] Central Banking Newsdesk. Boston Fed President Wants Low Rates Well Into Future. November 2013. Central Banking.
[20] Central Banking Newsdesk. High Unemployment Not Structural: Boston Fed’s Rosengren. November 2011. Central Banking.
[21] Appelbaum, Binyamin. A Chat With the Boston Fed’s Chief. April 2013. New York Times.
[22] Appelbaum, Binyamin. 2% Inflation Rate Target Is Questioned as Fed Policy Panel Prepares to Meet. April 2015. New York Times.
[23] Shakil, Ismael. Inflation Goal May Be Too Low, Says Fed’s Rosengren. April 2015. Reuters.
