The Economy

Fed’s Rosengren Says Rate Cut ‘Not Needed’

“While risks clearly exist related to trade and geopolitical concerns, lowering rates to address uncertainty is not costless.”
Lauren MuskettSeptember 20, 2019

Boston Federal Reserve Bank President Eric Rosengren defended his vote against cutting interest rates, saying that the move was unnecessary and may be harmful to the economy.

“Additional monetary stimulus is not needed for an economy where labor markets are already tight, and risks further inflating the prices of risky assets and encouraging households and firms to take on too much leverage,” Rosengren said in a statement.

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On Wednesday, the Federal Reserve voted to cut borrowing costs by a quarter of a percentage point to a range of 1.75% to 2.00%.

Rosengren was one of three committee members who opposed the rate cut.

Eric Rosengren

“While risks clearly exist related to trade and geopolitical concerns, lowering rates to address uncertainty is not costless,” he added. “One potential cost of increased accommodation is that very low rates can encourage households and firms to take excessive risks. This could show up in the form of increased household and firm leverage, with prices for risky assets reaching levels that may not be sustainable over time.”

St. Louis Fed president James Bullard also voted against the rate cut, but he did so, he said, because the central bank needed to be more aggressive than the 25 basis-point reduction in rates.

“There are signs that U.S. economic growth is expected to slow in the near horizon,” Bullard said in a statement on Friday. “Trade policy uncertainty remains elevated, U.S. manufacturing already appears in recession, and many estimates of recession probabilities have risen from low to moderate levels. Moreover, the yield curve is inverted, and our policy rate remains above government bond yields for nearly every country in the G-7.”

Bullard cited low inflation as another reason for a 50-basis-point rate cut. He was the only member of the monetary policy committee who pushed for a more aggressive rate cut.