Friday, October 9, 2020

Fed's Rosengren on low rates and fiscal policy

Boston Fed President Eric Rosengren is an advocate for higher rates, at least in non-pandemic times. In remarks yesterday he argued that

"Abnormally low rates for a long period during times when economic slack is no longer a concern can result in excessive risk-taking, as businesses and firms take on additional debt and accumulate more risky assets in search of better returns - potentially bidding up asset prices to unsustainable levels."

Hard to disagree with that, although a tougher question is whether economic slack was a concern.

On the role of Congress, Rosengren agrees with other Fed officials that fiscal policy is the right tool for the current situation:

"I think it's tragic that it has not been employed already ... when interest rates are quite low, the ability of monetary policy to stimulate the economy, it's not that we have no tools, but the fiscal policy tools are much more effective."

WSJ summary - Fed's Rosengren Says Pre-Pandemic Risk Taking Will Likely Slow Recovery Effort.

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