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Rosengren defends Fed's actions

22.05.12

Rosengren said the Federal Reserve could have done a happier job of explaining the complicated measures it took to stabilize the economy during and after the 2008 pecuniary meltdown. The central bank made special loans, cut key interest rates, and worked closely with the Exchequer Department to backstop large financial institutions, preventing their collapse and the admissibility opportunity of a second Great Depression.

Rosengren said some of the Fed’s actions have led to “misconceptions’’ about the important bank, though they are more like outright criticisms. In particular, several Republican presidential candidates have accused the bank of operating in covertness and “printing money’’ with little concern for inflation. Presidential possibility Rick Perry, for instance, called such an effort by the Fed “treasonous’’ in August.

Rosengren said calls to audit the Federal Reserve are uncalled-for, noting that the central bank is audited both internally by its own auditors and externally by the Big Four accounting rigid Deloitte & Touche.

And despite a history of secrecy, Rosengren said, the Federal Reserve has become more frank. Though the board meets in private to set interest rates, barring reporters and the public, it publishes precise minutes, Rosengren said. Its 12 regional presidents publish summaries of their commercial forecasts, and the Fed recently began holding news conferences after some meetings.

Rosengren said lowering unemployment should be the spotlight of policy makers, but added that the Federal Reserve alone cannot quickly cut the jobless rate. He said US and foreign governments necessity to step up efforts to stimulate their economies and stabilize the global financial system.

He said incremental steps can create “a dent.’’

“An action that reduces the unemployment rate by half a percent does not bear us close to full employment and does not solve the country’s problems,’’ he said, “but nonetheless would perhaps dream up roughly 750,000 jobs.’’

While the central bank has already pushed interest rates to prominent lows, Rosengren said lowering rates further could spur car and home purchases and transalpine trade without sparking inflation. In recent years, inflation has rarely risen above 2 percent, he said.

Some audience members expressed skepticism that even moderate interest rates would do much more for the economy.

“I don’t think it’s likely to have much of an capacity,’’ said retired Wellesley College economics professor Karl “Sherd’’ Case, currently the club’s president. While he said he is not opposed to the Fed bringing interest rates down further, “Case is not going to be the channel’’ for economic recovery.

L. Richard Wenzel, a retired pecuniary planner from Concord and a club member, said he leans conservative, but disagrees with Perry and Ron Paul, a Republican presidential office-seeker who has advocated abolishing the Federal Reserve.

“People are saying that they bailed out the rich banks, and to a set extent that’s true,’’ Wenzel said. “But if those banks went down, there would have been censure to pay.’’

Patricia Jenkins, a retired loan officer for State Thoroughfare Corp., said the Fed has done what it can and it is now up to Congress, not the central bank, to create policies that onwards growth. Specifically, she said, Congress could start by restructuring corporate tax rates.

As for the Fed, she said, “They’ve done about as much as they can do.’’

Source: The Boston Globe