President of the Federal Reserve Bank of Boston, Eric Rosengren, has said that the Fed should not let the recent financial market turmoil affect the upcoming policy meeting at the end of October.
In an interview on October 17, Rosengren said:
“Volatility by itself isn’t a bad thing, it’s just reflecting there’s a lot of uncertainty in the market,”
“Just because we’re seeing volatility in the last two weeks isn’t enough to have me fundamentally change my forecasts.”
Rosengren has expressed his belief that the Federal Open Market Committee should stop its bond purchasing program, as planned, at the end of the month. This would end the Fed’s policy of quantitative easing.
The program should only continue if there is big news affecting the outlook of economic growth.
He said:
“If we get a lot of information in the next week and a half that indicates there’s a much more severe problem, I wouldn’t rule it out,”
US markets experienced one of the most volatile weeks since the economic crisis. The S&P 500 Index was 6.2 percent lower from the record high it reached in September.
The market shakeup occurred not long after the September FOMC meeting, which revealed that many members are concerned about the pace of global economic growth.
Rosengren said that the swings in financial markets are difficult to explain as there has not been a real change in economic trends. He forecasts that the US economy will grow at a 3 percent annual rate in the second half of the year and into 2015.
He said
“I’m not sure we’ve been surprised on the real side,” adding “I’m not sure we’ve been surprised on the inflation side either.”
His own standard for stopping the bond-purchasing program was “substantial improvement in labor markets.”
Adding that, “Unemployment is at 5.9 percent, so I think we’ve met the hurdle,”
“We could stay at the zero lower bound for longer. We could decide to raise rates at a more gradual pace. It’s not clear to me that continuing QE would necessarily be the best way to address concern,”
“We should look at oil, but we shouldn’t give undue weight to one price that moves a lot,” he said. “Monetary policy is not a particularly good instrument to target the price level of an individual commodity.”
Rosengren said that lower oil prices would help boost the U.S. economy.
“It should be very good news for consumers as people have more disposable income because they’re not spending as much on fuel,”
“But you have to think about what the reason is for why oil prices are going down. If it’s because you think demand is down worldwide that may not be a particularly good thing,”
“If it’s a supply story, I think it’s a very positive story for the consumer.”