Boston Federal Reserve chief Eric Rosengren yesterday called for the government to launch another round of monetary stimulus, a form of controversial "quantitative easing" that his colleagues took a pass on last week.
At the Fed's next meeting in six weeks, Rosengren said he wants decision-makers to authorize the central bank to "accumulate a fairly substantial amount of assets" that are "largely focused on mortgage-backed securities."
"It's going to need to be fairly large to have an impact," he said in an interview with the Herald. "I'd want to tie it to economic outcomes rather than a calendar date."
Between November 2008 and May 2010, the Fed bought $1.75 trillion in debt held by Fannie Mae and Freddie Mac along with mortgage-backed securities and Treasury notes. Another $600 billion in Treasury securities were purchased from November 2010 to June 2011. Rosengren wants to institute what would become the third round of quantitative easing since the housing collapse, a widely debated program known as "QE3."
"We have an economy growing more slowly than we expected," he said. "If we weren't facing some of the problems with fiscal policy abroad and with Europe, we probably would have a self-sustaining recovery now."
Rosengren said economic indicators signaled that the two previous programs had a positive impact -- but not enough. "The economy would be worse had we not taken that action," he said.
Rosengren's call came after presumed GOP presidential nominee Mitt Romney took a firm stance against a QE3 on Sunday. President Obama has been silent on the issue. Fed Chairman Ben Bernanke has said any monetary stimulus must be accompanied by a meaningful fiscal policy crafted by Congress.
That's unlikely to happen until after the November election, but Rosengren said we shouldn't wait for the economic growth to slow before taking action. Buying mortgage-backed securities would improve equity prices, push loan rates down and stimulate exports as well, he said.
"The bottom line is we've been treading water long enough," he said. "It's time to take tangible action."
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