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Fed policy cannot make up for fiscal shocks: Rosengren
October 11, 2013 / 6:39 PM / 4 years ago

Fed policy cannot make up for fiscal shocks: Rosengren

NEW YORK (Reuters) - Boston Federal Reserve Bank President Eric Rosengren said on Friday that U.S. economic growth in the fourth quarter will likely take a hit from the government shutdown caused by fighting among U.S. lawmakers over the budget and a raising of the debt ceiling.

“We might have had a better outcome by the fourth quarter if we hadn’t had this self-induced shock,” Rosengren told investors at the Council on Foreign Relations in New York.

Rosengren said he thought the U.S. economy should be seeing economic growth faster than 2 percent, while a growth rate of 3 percent would start to bring down the unemployment rate, a key condition the Fed has set for reducing its stimulus program.

”Monetary policy can mitigate some of these shocks but cannot offset it,“ he said. ”So if we really have bad fiscal decisions that get made and it really has a big impact on GDP, we can try to reduce some of that impact by lowering interest rates.

“So, we have to be humble with how much monetary policy can do.”

Reporting by Daniel Bases; Editing by Leslie Adler

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