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The Economic Outlook and
Monetary Policymaking
Eric S. Rosengren
President & CEO
Federal Reserve Bank of Boston
Lake Champlain Regional Chamber of Commerce
Burlington, Vermont
October 2, 2013
EMBARGOED UNTIL WEDNESDAY, OCTOBER 2, 2013 AT 12:40 P.M. OR UPON DELIVERY
Recent FOMC Decision
 Much public discussion over Fed’s September
FOMC decision and lead-up messaging
 I strongly support the decision to continue
purchases of Treasury and Mortgage-Backed
Securities
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
Disappointing incoming economic data
Possibility of disruptions in the nation’s fiscal policies
Long-term market rates had already risen more than
desirable to support recovery
 Improvement needs to be in the data, not just
the forecast
2
Policy Should be Data Dependent
 Policy that is data dependent cannot always
be “signaled” clearly in advance
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
Utilize all available information
FOMC is a committee – different interpretations
and weighting of data
FOMC discussion can influence views
 Reliance on data may mean at times less
signaling before FOMC meetings about small
changes in the purchase program
3
Developing Data-Driven
Monetary Policy
 Policy is not determined by Wall Street
expectations – rather, policies need to be
consistent with achieving key goals
(employment, prices)
 Had the fiscal issues not been problematic,
and incoming data on real GDP and
employment stronger, it may well have been
appropriate to take some action in
September
4
Communicating Data-Driven
Monetary Policy
 Certainly there are difficulties inherent in
communicating a data-contingent policy
 Some inherent policy uncertainty when policy
is dependent on actual incoming data (which
may or may not follow forecasts)
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Figure 1
Civilian Unemployment Rate
January 2008 - August 2013
Percent
1
12
10
1
8
1
6
0
4
0
2
0
0
Jan-2008
Jan-2009
Jan-2010
Jan-2011
Jan-2012
Jan-2013
Recession
Source: BLS, NBER / Haver Analytics
6
Figure 2
Civilian Labor Force Participation Rate*
January 2008 - August 2013
Percent
1
68
1
66
1
64
0
62
0
0
60
Jan-2008
Jan-2009
Jan-2010
Jan-2011
Jan-2012
Jan-2013
Recession
*The percent of the population 16 years of age and over that is either working or actively searching for work
Source: BLS, NBER / Haver Analytics
7
Figure 3
Payroll Employment Growth
January 2008 - August 2013
Thousands of Jobs, Three-Month Moving Average
400
400
200
200
0
0
-200
-200
-400
-400
-600
-600
-800
-800
Jan-2008
Jan-2009
Jan-2010
Jan-2011
Jan-2012
Jan-2013
Recession
Source: BLS, NBER / Haver Analytics
8
Figure 4
Growth in Real Residential Investment
and Real Consumer Durable Goods
2012:Q3 - 2013:Q2
Percent Change at Annual Rate
20
Residential Investment
Consumer Durable Goods
15
10
5
0
2012:Q3
Source: BEA / Haver Analytics
2012:Q4
2013:Q1
2013:Q2
9
Figure 5
Growth in Real GDP and Selected Components
First Half of 2013
Percent Change at Annual Rate
16
12
8
4
0
-4
GDP
Consumer
Spending
Source: BEA / Haver Analytics
Business
Investment
Residential
Investment
Government
Spending
Exports
Imports
10
Figure 6
Contribution of Real Government Spending to
Percent Change in Real GDP During Recovery
Percentage Points at Annual Rate
2
Historical Average of Previous Recoveries
(1947 - Present)
1
0
Current Recovery
-1
-2
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Quarters from Trough of Recession
Source: BEA, NBER / Haver Analytics
11
Figure 7
Employment Growth During Current and
Previous Recoveries
Index, Official Trough = 100
112
Historical Average of Previous Recoveries
(1947 - Present)
108
104
Current Recovery
100
96
0
6
12
18
24
30
36
42
48
Months from Trough of Recession
Source: BLS, NBER / Haver Analytics
12
Figure 8
Growth in Real Consumer Spending
and Real Government Spending
2012:H1 - 2013:H2
Percent Change at Annual Rate
4
2
0
-2
-4
Consumer Spending
Federal Government Spending
State and Local Government Spending
-6
2012:H1
Source: BEA / Haver Analytics
2012:H2
2013:H1
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Figure 9
Economic Projections of Federal Reserve Board
Members and Federal Reserve Bank Presidents
June 2013 and September 2013
Percent
4.0
Change in Real GDP
2013
Percent
4.0
Change in Real GDP
2014
3.5
3.5
3.5
3.0
3.0
3.0
2.5
2.6
2.3
2.0
3.1
2.9
2.5
2.3
2.0
1.5
2.0
1.5
June 2013
September 2013
Note: High, Low and Midpoint of Central Tendency
June 2013
September 2013
Note: High, Low and Midpoint of Central Tendency
Note: Central tendency excludes the three highest and three lowest projections for each variable in each year.
Source: FOMC, Summary of Economic Projections
14
Figure 10
Inflation Rate: Change in Total and Core Personal
Consumption Expenditure (PCE) Price Indexes
January 2007 - August 2013
Percent Change from Year Earlier
5
1
4
1
PCE
3
Target (2%)
2
1
0
Core PCE
(Excluding Food and Energy)
0
1
0
-1
0
-2
Jan-2007
Jan-2008
Jan-2009
Jan-2010
Jan-2011
Jan-2012
Jan-2013
Recession
Source: BEA, NBER / Haver Analytics
15
Figure 11
Inflation Projections of Federal Reserve Board
Members and Federal Reserve Bank Presidents
September 2013
Percent
PCE Inflation
Fourth Quarter to Fourth Quarter
Percent
2.50
2.50
2.00
2.00
1.50
1.50
1.00
1.00
0.50
0.50
Core PCE Inflation
Fourth Quarter to Fourth Quarter
Midpoint of Central Tendency
0.00
Midpoint of Central Tendency
0.00
2013
2014
2015
2016
2013
2014
2015
2016
Note: Central tendency excludes the three highest and three lowest projections for each variable in each year.
Source: FOMC, Summary of Economic Projections
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Risks
 Risks to the outlook remain on the downside
 Fiscal issues and fiscal austerity are still
headwinds to recovery
 Concern over problems once again emerging
in parts of Europe
 Higher market interest rates could slow down
the strongest sectors of economy
17
Implications for Monetary Policy
 If the economy evolves as anticipated, policy
should, in my view, include only a very slow
removal of accommodation over the next
several years, and that should only occur
when the data ratify our forecast for an
improvement in real GDP and employment
 If data indicate stronger or weaker growth
than anticipated, monetary policy should
adjust
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Conclusion
 Monetary policy is not following a predetermined
path
 We likely need to see the fiscal headwinds
subside, and consumers become more
confident
 If the economy is not improving as expected, in
my view, we should not reduce accommodation
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