Fed's Rosengren: Low inflation not problematic in short term

Economy 1/12/2018, 10:39 PM
Fed's Rosengren: Low inflation not problematic in short term

The recent period of lower than expected inflation does not pose a serious problem for monetary policy in the short term, president of the Federal Reserve Bank of Boston, Eric Rosengren stated on Friday, adding that the low inflation rates have enabled the Federal Reserve to gradually pull out of the "extraordinary" monetary policy accommodation set up in response to the financial crisis. However, Rosengren stressed that "low and fixed" inflation targets could prove to be a problem, especially in the case of prolonged "low productivity growth, a low equilibrium interest rate, and the near-certainty of a slowly growing and aging workforce."

The central banker pointed out that the environment of low interest rates makes it difficult to conduct monetary policy in the case of a recession. According to Rosengren, the policymakers would start with low interest rates at the beginning of a crisis, which would leave them little room to respond by lowering rates in order to offset the effects of the recession. Also, he added that low interest rates have the potential to undermine financial stability since they motivate households and firms to take on additional risk.

Breaking the News / FH