Voting Boston Fed is for Agressive Bond Purchase Program

Non Voting Fed Members Can Complain all they want but they can't vote: Boston Fed President Eric Rosengren called on the Fed to respond ‘aggressively and vigorously,' on the Nightly Business Report, on Wednesday night. The presidents of the Minneapolis and Philadelphia Federal banks said on Wednesday they're opposed to the central bank making another round of bond purchases to boost economic activity. Rosengren is a voting member of the central bank's key policy-setting committee, and they are not. Rosengren explained why he thinks the Fed should respond so vigorously: “The economy has been growing slower than many forecasters expected and slower than we'd like to see. We want to get back to full employment. If we're going to do that we need more aggressive monetary and fiscal policy if we're going to be able to get back to full employment over a reasonable period of time. And the inflation rate is quite low. We're at an inflation rate a little below 1 percent if you measure it by the course CPI. We've said in the longer run we hope to get to 2 percent inflation rate. So in order to do that, we need to have the economy growing more rapidly than it has been doing recently.” Rosengren explained how the Fed will decide on how big the bond purchase program will be: “The size of the program depends on how quickly you want to get to where you want to go. So in the long run we've said we want an inflation rate of 2 percent and an unemployment rate around 5 percent. That's far from where we are right now. So if you want to get there more quickly in a reasonable time frame, it would require a more aggressive program.” What does Rosengren hope the actions of this purchase program will achieve? “The first effect is by interest rates. So if we buy more Treasury securities, that pushes the price up and that pushes the interest rate down. But it doesn't just push the rate down on Treasury securities. Other long-term rates also go down. That helps people who are thinking about buying a house because if the interest rate goes down, it will be more affordable to purchase a house. From a corporation standpoint if the interest rate is lower, some projects that weren't feasible at a higher interest rate become feasible at a lower interest rate. So one of the principal ways I think it has an impact is directly on demand by having lower interest rates.” How long will it take before we have normal unemployment: “It's going to take three to five years before we're going to start seeing an unemployment rate in the range we'd like to see it and inflation is a very slow moving process. We want it to happen overnight. It's just not going to happen overnight. It's going to take a while before we get back to where we were,” Boston Fed President Eric Rosengren said.