Boston Fed chief Rosengren: Austerity hurts
Eric Rosengren, president of the Boston Federal Reserve Bank, has rarely shied away from controversial issues, and he’s showing no sign of stopping now. In a speech today at a banking conference in Italy, Rosengren criticized federal spending cuts and tax increases. He said moving too aggressively to cut the budget could have a “dampening effect” on the economic recovery.
Rosengren acknowledged that he is wading into areas that are outside the strict purview of the Fed. “Fiscal policy is obviously the jurisdiction of the legislative and executive branches of government,” he said in his speech. “But given the economic realities, I would urge policymakers to consider scenarios where some elements of fiscal rebalancing take effect only after the economy has more fully improved, and the possibility of a less restrictive fiscal stance until that time.”
Rosengren has developed a reputation as an activist Fed chief, someone who has ranged well beyond the narrow bounds of monetary policy to speak out on real-world issues of housing, poverty, and the shortage of skilled workers in certain sectors.
In his speech today in Milan, he pointed out that cuts in US government spending over the last three years in percentage terms have been greater than those in the United Kingdom or in countries using the euro, places where he said austerity policies have received more attention. In speaking out on government spending, Rosengren is wading into an area that has been a flashpoint for debate among political leaders in Washington and in the halls of academia, where a study by noted Harvard economists has come in for sharp criticism.
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