Fed's Rosengren warns of unseen risks from Europe

WORCESTER, MA Wed May 30, 2012 6:33pm EDT

WORCESTER, MA (Reuters) - Unforeseen risks in struggling European countries have the potential to hurt the financial sector and the overall U.S. economy, Federal Reserve Bank of Boston President Eric Rosengren said on Wednesday.

"The risk in Europe is that there could be some people with exposures that we are not aware of now," Rosengren said while taking questions after a speech to the Worcester Regional Research Bureau's annual meeting in Worcester, Massachusetts.

"If we had a really disorganized failure in Europe it would be hard to fully insulate our economy."

Even the best current outcome for Europe, for countries to "muddle through" with very low growth, poses a risk for the United States, Rosengren said, adding, "the bad outcome is a lot worse than that."

Already, U.S. business fixed investment has slipped somewhat, with worries about Europe and about the U.S. fiscal outlook the most likely culprits, he said.

Rosengren, typically one of the most dovish of Federal Open Market Committee members, said that U.S. inflation coming in below current forecasts was more likely than a jump in prices, in part because of subdued wage growth.

A feature of the current slow recovery has been that no sector of the labor market had seen a sharp jump in wages, Rosengren said.

"What's striking about this recovery is how modestly all industries have done," he said. "We're not seeing much wage pressure in the overall economy."

Rosengren said the United States must get back to a sustainable fiscal policy for the long term but that "it has to be done sensibly," without the kind of shocks that have hurt parts of Europe.

Rosengren is not a voting member of the FOMC in 2012 but will vote in 2013.

(Reporting By Ros Krasny; Editing by Dan Grebler)

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