While the pace of economic expansion has slowed, overall the economy is doing quite well and the possibility of a recession is quite low, according to Eric Rosengren, president of the Federal Reserve Bank of Boston.
- Fed is waiting to see convincing evidence that inflation will sustain 2% target.
- Too-low inflation expectations can be hard to alter.
- Favors Fed’s adopting a target inflation range that recognizes the challenge of low rates.
- The combination of low inflation, low-interest rates means the Fed has little room to respond to the downturn.
- Fed is currently lowering long-term rates by holding mostly long-term securities.
- Fed’s balance sheet asset allocation will be a topic in future FOMC discussions.