NEW YORK – Federal Reserve Bank of Boston President Eric Rosengren said the outlook for the U.S. economy is for “very slow improvement,” and monetary accommodation is still needed to help spur growth.
Rosengren forecast that economic growth will climb to a range of 3 percent to 3.5 percent in the second half of the year from about 2 percent in the first six months of 2011.
“While this represents an improvement from the first half, it is still quite slow given the amount of slack in the economy and slower than I had expected at the beginning of the year,” Rosengren said in the text of remarks given in Worcester, Mass., Wednesday. “With fiscal austerity slowing down economies both here and abroad, it will in my view be important to maintain sufficiently accommodative U.S. monetary policy so that national labor market conditions can improve.”
The policy-setting Federal Open Market Committee is divided on whether additional monetary stimulus may be needed, or whether economic conditions may warrant a withdrawal of accommodative policy “sooner than currently anticipated,” according to the minutes from their June meeting, released yesterday. Rosengren said he expects inflation to remain low in the “medium-term,” giving “monetary policy the leeway to remain accommodative.”
Policy makers cut their forecasts before a July 8 government report showed that employers added 18,000 jobs in June, the fewest since September 2010. The unemployment rate rose to 9.2 percent, the third consecutive monthly increase.
Equipment, Software
“While we are seeing some positive economic signs such as equipment and software spending, and growth in exports, the employment report issued last Friday was dismal,” Rosengren said. “Net job growth was very weak over the last two months.”
It may not be “quite right” to consider the slowdown so far this year a “slow patch” because that “suggests strong growth that has been temporarily interrupted by some sort of headwind or shock,” Rosengren said. “The only quarter of strong economic growth so far in this recovery has been the one containing the holiday season at the end of last year.”
U.S. growth slowed to a 1.9 percent annual pace in the first quarter from 3.1 percent in the last three months of 2010.
“I would instead describe the past two years as a consistently weak recovery, interrupted by a period of stronger growth,” Rosengren said.
Rosengren, 54, joined the Boston Fed as an economist in 1985 and became its president in 2007. Fed presidents rotate voting on monetary policy, with Rosengren next voting in 2013. At the Fed’s December 2007 meeting, he became the only currently serving policy maker to dissent from an FOMC decision in favor of more accommodative policy.
