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Monetary Policy and Forward
Guidance
Eric S. Rosengren
President & CEO
Federal Reserve Bank of Boston
April 15, 2014
Husson University
Bangor, Maine
bostonfed.org
Figure 1: Civilian Unemployment Rate (U-3):
Total Unemployed as a Percent of the Civilian
Labor Force
January 1994 - March 2014
12
Percent
10
8
6
4
2
FOMC initiated 6.5% threshold
in December 2012
0
Jan-1994
Jan-1998
Recession
Jan-2002
Jan-2006
6.5% Threshold
Source: BLS, NBER, Haver Analytics
Jan-2010
Jan-2014
Figure 2: Civilian Unemployment Rate (U-3) Path
based on Okun’s Law and Recent Trends
Jan 1994 - Mar 2014 Actual, Apr 2014 - Jan 2020 Projections
11
Percent
Civilian Unemployment Rate (U-3)
Trend Line Oct 2009 - Mar 2014
9
Okun's Law and 3% GDP Growth
Okun's Law and 2.5% GDP Growth
7
5
April 2016
February 2017
3
January 2020
1
Jan-1994 Jan-1998 Jan-2002 Jan-2006 Jan-2010 Jan-2014 Jan-2018
Recession
Full Employment Estimate of 5.25%
11
9
7
5
3
1
Note: Okun’s Law projections assume growth of 1% and 0.5% above potential GDP growth of 2%.
Source: BLS, NBER, Haver Analytics, Author’s Calculations
Figure 3: Inflation Rate: Change in Core
Personal Consumption Expenditure (PCE) Price
Index
2010:Q1 - 2013:Q4 Actual, 2014:Q1 - 2018:Q4 Forecast
2.5
Percent Change from Year Earlier
Inflation Target of 2%
2.0
1.5
1.0
Actual
Forecast
0.5
0.0
2010:Q1
2012:Q1
2014:Q1
2016:Q1
2018:Q1
Note: Forecast uses a Phillips Curve with anchored inflation expectations. Projected inflation is
based on the expected evolution of the unemployment rate from the midpoint of the central tendency
of the SEP. Source: BEA, NBER, Haver Analytics, Federal Reserve Bank of Boston Calculations
Figure 4: Housing Starts: Actual and Blue Chip
Forecast
1994 - 2013 Actual, 2014 - 2015 Forecast
2,500
Thousands of Units
2,000
1,500
1,000
Actual
Consensus Forecast (Average)
500
Average of 10 Highest
Average of 10 Lowest
0
1994
1998
2002
2006
2010
2014
Source: Bureau of the Census, Blue Chip Economic Indicators, April 10, 2014, Haver Analytics
Figure 5: Population and Households
January 1994 - December 2013
320
Millions of Persons
Millions of Households
Resident Population
(Left Scale)
305
125
119
290
113
275
107
Number of Households
(Right Scale)
260
245
Jan-1994
101
95
Jan-1998
Jan-2002
Jan-2006
Source: Bureau of the Census, Haver Analytics
Jan-2010
Figure 6: Growth in Households
1994:Q1 - 2013:Q4
2.5
Percent Change from Year Earlier
2.0
1.5
1.0
0.5
0.0
1994:Q1
2000:Q1
2006:Q1
Recession
Source: Bureau of the Census, NBER, Haver Analytics
2012:Q1
Figure 7: Checkable Deposits and Currency
of Nonfinancial Corporate Businesses
1980:Q1 - 2013:Q4
500
Billions of Dollars
400
300
200
100
0
1980:Q1
1986:Q1
1992:Q1
1998:Q1
2004:Q1
Recession
Source: Federal Reserve Board, NBER, Haver Analytics
2010:Q1
Figure 8: Checkable Deposits and Currency of
Households and Nonprofit Organizations
1980:Q1 - 2013:Q4
1,000
Billions of Dollars
800
600
400
200
0
1980:Q1
1986:Q1
1992:Q1
1998:Q1
2004:Q1
Recession
Source: Federal Reserve Board, NBER, Haver Analytics
2010:Q1
Figure 9: Persons Employed Part Time for
Economic Reasons as a Percent of the Civilian
Labor Force
1994:Q1 - 2014:Q1
6
Percent of Civilian Labor Force
5
4
3
2
1
0
1994:Q1
2000:Q1
Recession
Source: BLS, NBER, Haver Analytics
2006:Q1
2012:Q1
Figure 10: Long-Term Unemployment:
Persons Unemployed 27 Weeks or More as a
Percent of Total Unemployed Civilians
1980:Q1 - 2014:Q1
50
Percent of Total Unemployed Civilians
40
30
20
10
0
1980:Q1
1986:Q1
1992:Q1
Recession
Source: BLS, NBER, Haver Analytics
1998:Q1
2004:Q1
2010:Q1
Figure 11: Foreign Claims of Domestically Owned
Reporting Banks on Emerging Market Economies
Consolidated, Ultimate Risk Basis
2013:Q3
2,500
Billions of U.S. Dollars
Emerging Africa and Middle East
Emerging Asia and Pacific
2,000
Emerging Latin America/Caribbean
Emerging Europe
1,500
1,000
500
0
Euro Area
United
Kingdom
United States
Japan
Switzerland
Note: Worldwide consolidated positions of domestically owned banks of 24 reporting countries.
Source: BIS Quarterly Review, March 2014, Statistical Annex Table 2B