Highlights from a speech by Eric S. Rosengren, President & Chief Executive Officer, The Global Interdependence Center Central Banking Conference, Milan, Italy. May 16, 2013:
…the progress of the economic recovery to date has been frustrating. And, despite the presence of significant headwinds – fiscal, financial, and otherwise – some have suggested that the slow recovery proves that recent monetary policy actions have been ineffective. However, contrary to what these observers claim, I would argue that the “miss” on outcomes is not evidence of monetary policy ineffectiveness. In fact, in the sectors of the economy that are likely to be most responsive to lower interest rates, like housing and consumer durables, recent growth has been quite rapid. Contrary to the notion that policy has not succeeded, I would actually say that monetary policy has been quite effective in offsetting the contractionary effects of recent fiscal policies.
Consider the 1982 recovery – the last time we had a recession where the unemployment rate reached 10 percent. Government spending by this stage of the recovery had increased by 20 percent, one reason that particular recovery was strong. By contrast, during this recovery real government spending has declined by more than 5 percent over the 15 quarters of the recovery.
… cuts in real government spending in the United States over the past three years have been quite large. In fact, the cuts in government spending in the United States have been much larger in percentage terms than in the U.K. or the Euro area, where fiscal austerity has received more attention. Fiscal restraint is one of the headwinds that we factored into monetary policymaking, framed of course by our mandates from Congress. Implications of Fiscal Austerity for U.S. Monetary Policy – Boston Fed.
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