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Fed's Rosengren says U.S. economy should see significant rebound this year

Jonnelle Marte
·1 min read

By Jonnelle Marte

April 12 (Reuters) - The U.S. economy could see a significant rebound this year thanks to accommodative monetary and fiscal policy, but the labor market still has much room for improvement, Boston Federal Reserve Bank President Eric Rosengren said on Monday.

"With labor-market slack still significant, and inflation still below the Federal Reserve’s 2 percent target, my perspective is that the current highly accommodative stance of monetary policy is appropriate," Rosengren said in remarks prepared for virtual discussion with business leaders.

It will also be important for coronavirus vaccines to successfully prevent the spread of new variants of the virus, he said. "Assuming virus variants do not become especially problematic, we should see an unusually strong post-recession recovery," he said.

Under a new framework adopted last year, Fed officials will be patient and leave rates near zero until inflation materializes - no longer raising rates in anticipation of higher inflation when the unemployment rate is low, Rosengren said.

While they focus on the recovery, policymakers should also be wary of risks lurking in financial markets, Rosengren said. For example, some money market funds faced liquidity problems last year after some investors pulled their money quickly, he said.

Solutions could include requiring some funds to invest more in government-backed debt. It could also help to develop a system for buying and selling Treasury securities that is not as reliant on broker dealers, which can face strain when large volumes of Treasury securities are sold.

“During the economic recovery, policymakers should be diligent about removing these risks to financial stability," he said. (Reporting by Jonnelle Marte Editing by Chizu Nomiyama)