June 7, 2012 / 9:56 AM / 7 years ago

Fed's Rosengren warns on growing economic risks

COPENHAGEN (Reuters) - Risks to the world’s economic and financial outlook are growing again and affecting the behavior of households and businesses, a top U.S. Federal Reserve official said on Thursday.

Eric Rosengren, president of the Boston Federal Reserve Bank, stood by his call last week for more easing at a banking conference in Copenhagen, saying that inflation would likely “undershoot” forecasts this year.

“That gives us some flexibility to think about additional monetary policy accommodation,” he said.

He saw both the headline and core personal consumption expenditure indexes falling to around 1.7 percent.

Last week, Rosengren made a strong call for the U.S. central bank to take more policy action to boost weak growth and to lower unemployment.

“I think the global economy continues to be at risk. I think one of those risks is that some of the future problems are starting to seep into our forecasts for now. So even if those downside risks don’t materialize it is affecting behavior,” he said at the conference.

Attending the Institute of International Finance meeting of financiers and policymakers in the Danish capital, Rosengren warned that banks and regulators must continue to strengthen the financial system to boost confidence among investors and stem a shrinkage of funding sources.

Failure to “decisively resolve banking problems could cause collateral damage to the global economy,” Rosengren said, citing a shift of funders into low-risk securities such as U.S., UK and German bonds.

“Risks that one year ago were viewed as so-called ‘tail-risk events’ are increasingly being integrated into many peoples’ base forecasts,” he said. “This shift highlights that risks are once again on the rise, and that uncertainty about some of the challenges facing the global economy is already impacting the economic behavior of households and businesses.”

Rosengren added: “In this way, concerns about the possibility of future problems cause a substantial reduction in current economic growth.”

Reporting by Mette Fraende and Mia Shanley in Copenhagen; Writing by Jonathan Spicer in New York; Editing by Toby Chopra

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