Boston Fed President Wants CB to Focus on Low Inflation

The Fed should fight low inflation as vigorously as it would a too rapid run-up in prices or risk the same sort of prolonged slow growth plaguing Japan and Europe, Boston Federal Reserve bank president Eric Rosengren said on Monday.

Rosengren, in remarks at Washington and Lee University devoted to the potential costs of inflation that remains stuck below the Fed’s two percent target, said the Fed’s own credibility was at stake. Failure to get inflation to target, he said, raised the risk that investors and consumers would slip into deflationary thinking, changing their spending and investment patterns in ways that would further undermine growth.

“Japan’s experience and now Europe’s current situation both indicate that indifference to very low inflation rates can generate a significant loss of confidence in the ability of a central bank to hit its inflation goal,” Rosengren said, noting that low bond yields globally indicate investors have “little expectation” the Fed and other major central banks will be successful in lifting prices.

 
He repeated his call for the Fed to remain patient in raising rates until it is more certain that inflation will rise to the Fed’s target. As it stands, he said, a collection of global and domestic forces are conspiring against that – from the fall in commodity prices to slow growth among U.S. trading partners and the absence, so far, of broadbased wage increases in the United States.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza