* Fed official says inflation record suggests even easier
policies were needed
* Suggests other central banks adopt dual mandate
By Jonathan Spicer
BOSTON, April 12 A top Federal Reserve official
on Friday defended the U.S. central bank's dual mandate of full
employment and price stability, and pointed to economic trends
that suggest an even more accommodative policy stance might have
been needed since the Great Recession.
Boston Fed President Eric Rosengren, redoubling his support
of the currently very easy U.S. monetary policies, argued the
Fed's inflation record over the past 15-20 years has been as
good as or better than central banks in Europe that have only a
single price-stability mandate.
In officially keeping one eye on unemployment, the Fed is
unusual in a developed world where central bankers are typically
tasked solely with maintaining price stability.
Highlighting the records of the European Central Bank, the
Bank of England, and Sweden's Riksbank, Rosengren went so far as
to suggest that central banks that focused only on inflation may
want to consider adopting a U.S.-style dual mandate.
He said such a move would, for example, make it easier to
publicly explain buying bonds when inflation is running above
target, as that trio has done in the wake of the global
"The dual mandate in the United States has been criticized
by some for providing an inflationary bias. However, the data
show little such evidence," he told the conference on fulfilling
the U.S. central bank's mandate of full employment, for which it
aims along with a 2-percent inflation target.
"The dual mandate in the United States has provided a clear
and transparent way to communicate the need for aggressive
Conservative politicians and hawkish economists have at
times criticized the Fed's "full employment" mandate in large
part because the main monetary policy tool, the short-term
interest rate, has only an indirect effect on the labor market.
These criticisms have grown as the U.S. central bank has
rolled out increasingly easy policies, including three big
Yet while the Fed has eased policy to lower joblessness and
raise inflation in the wake of the 2007-2009 recession, central
banks such as the BoE have also launched accommodative
bond-buying programs despite higher-than-desired inflation
With a touch of levity, Rosengren said that may only prove
that "all of us are dual mandate banks at heart."
Internationally, he said, "there should be a broader
consideration of moving to a dual mandate, such as we have in
the United States."
In Britain, for example, a new remit gives the BoE more
leeway to disregard above-target inflation due to one-off
factors, and it sets the stage for a broader review of monetary
policy this summer.
COULD HAVE BEEN EASIER?
The Fed is buying $85 billion in Treasury and mortgage
securities per month and has promised to keep interest rates
near zero for a long while more to support the stop-start U.S.
economic recovery and get Americans back to work.
The U.S. unemployment rate was 7.6 percent last month,
higher than the 5-6 percent range to which Americans are
accustomed. On the other side of the mandate, the Fed's
preferred measure of inflation is below target at around 1.3
While policy doves like Rosengren currently hold sway over
Chairman Ben Bernanke and the majority of Fed policymakers,
minutes from last month's policy meeting suggest the
quantitative easing program could draw to a close by year end,
earlier than some economists had expected.
Rosengren however said there remains "strong rationale for
continuing our highly accommodative monetary policy," and he
predicted inflation will remain "well below" the 2-percent
target over the next two years, paving the way for more easing.
Doubling down on his stance, he said the fact that the
United States has historically had a tighter inflation range and
broader unemployment range than that of the euro zone, Britain
and Sweden suggests the Fed could have been even more
stimulative over the past five years.
The Fed struggled with runaway U.S. inflation in the 1970s
and early 1980s.
Since then, Rosengren argued, the main difficulty has been
maintaining full employment, including a runup to 10 percent
joblessness in 2009.
"This may indicate that during the period of the 1970s and
early 1980s too little weight may have been placed on inflation
misses but in the more recent past we may have placed too little
weight on unemployment misses - and if anything, we should have
acted more aggressively to reduce the unemployment rate," he
However Rosengren, who has a vote on Fed policy this year,
stopped short of calling for more easing now.
Instead he repeated in a television interview that an
unemployment rate of 7.25 percent is a level at which the Fed
might taper or halt its bond-buying, depending on that is
happening in the labor market.