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Rosengren: Possible Weak Growth Later in the Year (Boston Globe)
March 3, 2009
The combination of the low oil prices and federal stimulus spending should spark weak economic growth in the second half of this year, but it won't be strong enough to stop the rise in unemployment, Boston Federal Reserve President Eric Rosengren said today.
Rosengen said he expects the national unemployment rate to stabilize in early 2010, and then begin to retreat as the economic recovery gains speed later next year. The national unemployment rate, which hit 7.6 percent in January, is likely to exceed 8.5 percent, Rosengren said.
“We certainly have not bottomed in the labor markets,’’ he said.
Rosengren, speaking in Waltham at the annual meeting of the Massachusetts High Technology Council, gave a glum assessment of current conditions. He said the US economy is likely to shrink at an annual rate of at least 5 percent in current quarter, which ends March 31, and to shrink again in the next quarter.
The Federal Reserve, which has already cut its key short-term interest rate to near zero, is taking other measures to boost the economy by lowering long-term interest rates, Rosengren said. For example, the Fed is buying securities backed by mortgages and Fannie Mae and Freddie Mac, the government-sponsored mortgage finance agencies.
In buying these securities, the Fed has freed up additional money for mortgage lending, which has helped bring rates for a 30-year-fixed rate home loan near historic lows around 5 percent.
Even though home prices have not hit bottom, "if rates are viewed as artificially low, people will come back into the market,” Rosengren said. "We do need to see a bottoming out in housing because it’s a big component in the wealth of individuals."
The Fed will be able to pull back quickly from its stimulative polices, considered by economists as the equivalent of printing money, to prevent the economy from overheating once conditions return to normal, Rosengren said.
“This isn’t a program we want to do, this is a program we need to do,” Rosengren said. “When the economy is this troubled, we need to pull out the stops”
(By Robert Gavin, Globe staff. File photo of Rosengren: John Tlumacki, Globe staff.)
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