May 30, 2012 / 7:56 PM / 7 years ago

Rosengren wants more Fed easing; Dudley, Fisher don't

SAN ANTONIO/WORCESTER, Massachusetts (Reuters) - Underscoring the divide at the U.S. Federal Reserve over its next move, Boston Fed President Eric Rosengren on Wednesday called further policy easing to bring down high unemployment even as two other top Fed officials said no further action was now needed.

William C. Dudley, president and chief executive officer of the Federal Reserve Bank of New York speaks at the Council on Foreign Relations in New York, May 24, 2012. REUTERS/Andrew Burton

“I believe further monetary policy accommodation is both appropriate and necessary,” Rosengren told the Worcester Regional Research Bureau’s annual meeting.

And if Europe’s debt crisis worsens or U.S. lawmakers allow scheduled tax hikes and spending cuts to sending the domestic economy over a “fiscal cliff” at year’s end, “more aggressive actions would certainly be warranted,” Rosengren warned.

His full-throated call for more monetary easing came on the heels of more sanguine remarks from New York Fed chief William Dudley and Dallas Fed President Richard Fisher earlier in the day, both of whom were cool to further Fed easing.

Although Dudley and Fisher stand on opposite ends of the policy spectrum at the Fed, they agreed on Wednesday that the current lofty unemployment rate should not force the U.S. central bank’s hand.

“As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think benefits of further action are unlikely to exceed the costs,” said Dudley, usually seen as a job-focused policy dove.

Fisher - a self-described inflation hawk - reiterated his longstanding view that the best way to boost jobs is for Congress to provide more clarity on tax policy and government spending plans.

“I don’t hear any business people and job creators saying, ‘I need more liquidity, I need more money,’” Fisher told reporters after a speech. Even though inflation is not currently a threat, he said: “I don’t see what we would accomplish with further accommodation.”

Dudley has a permanent vote on the Fed’s policy-setting panel while neither Fisher nor Rosengren is a voter this year. The panel next meets June 19-20.

The Fed has kept U.S. short-term interest rates near zero since December 2008, and has said it plans to keep them there until late 2014. It has also bought $2.3 trillion in bonds over the past several years to further bring down borrowing costs and boost the economy.

After a pickup in economic growth and a sharp decline in the unemployment rate late last year, recent weakness in U.S. employment data and a simmering debt crisis in Europe have rekindled speculation that the Fed may step in to do still more.

At the same time, some Fed policymakers, including Minneapolis Fed President Narayana Kocherlakota, want the Fed to begin raising rates again as early as this year.


Fed Chairman Ben Bernanke has kept the door open to further easing should the economic outlook worsen, a view echoed on Wednesday by Dudley.

“If the economy were to slow so that we were no longer making material progress toward full employment, the downside risks to growth were to increase sharply, or if deflation risks were to climb materially, then the benefits of further accommodation would increase in my estimation and this could tilt the balance toward additional easing,” Dudley told reporters.

Still, Dudley said expects a “gradual decline” in the unemployment rate “stretching out over next few years.”

The U.S. jobless rate stood at 8.1 percent in April, a month in which job growth slowed sharply, as it did in March. The May jobs report is due to be released on Friday.

For Rosengren, the too-high jobless rate and the possibility that failing to bring it down quickly could allow it to become engrained in the economy are enough to warrant further Fed action now.

The Fed could use communications to signal more accommodation, he said.

Just one other top Fed official, Chicago Fed President Charles Evans, had called publicly for more policy easing in recent months.

The Boston Fed president’s aggressively dovish stance emerges from an economic outlook that is markedly more gloomy than many of his colleagues.

On Wednesday he forecast U.S. economic growth of 2.3 percent this year, slower than the majority of his fellow policymakers, who in April saw growth of 2.4 percent to 2.9 percent.

Rosengren also expects 1.7 percent inflation, lower than any of his colleagues’ forecasts in April.

And his view that unemployment will still be at 8.1 percent in the fourth quarter likewise puts him at the pessimistic end of the scale.

“My desire to stimulate more growth now is partly to prevent the structural problem from becoming more severe because the economy did not re-employ workers more quickly,” Rosengren said.

He also said his forecasts were contingent upon Europe muddling through its debt crisis and U.S. lawmakers avoiding the so-called fiscal cliff - a raft of tax hikes and spending cuts set to kick in at the start of 2013 - that could otherwise send the United States back into recession.

On Wednesday, Dudley also warned about risks from Europe and a potential fiscal cliff, which would be a “huge shock” to the economy and lead to a tightening of gross domestic product growth of some 3 percent.

Reporting by Corrie MacLaggan and Jonathan Spicer, writing by Ann Saphir; Editing by Chizu Nomiyama, Gary Crosse

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