Central banks must turn to global financial crisis tool box to tackle the next recession, says Fed’s Rosengren
- Boston Federal Reserve president Eric Rosengren says observers should understand that central banks must use their balance sheets to confront potential recession
- Also calls for US Federal Reserve to hold more short-term US Treasury securities to make it easier to stimulate economy
The United States’ central bank may have to dust off some of the tools that helped steer the economy through the global financial crisis a decade ago should another recession hit, Boston Federal Reserve Bank president Eric Rosengren said on Tuesday.
With interest rates already low leaving limited room for cuts, the US Federal Reserve would likely have to turn to quantitative easing and other balance sheet tools to stimulate its economy, in the case of a downturn.
“I dare say it is important for market observers, lawmakers, and the public to become more comfortable with the benefits of central banks using their balance sheet tools to pursue the public interest,” Rosengren told the Credit Suisse Asian Investment Conference. “In my view, monetary policymakers should give more consideration to structuring the balance sheet to provide more leeway for policy measures to be taken when the next economic downturn occurs.”
The US Federal Reserve is in the midst of a sell-off of the assets it acquired through a long-term quantitative easing programme, but its balance sheet will not shrink to the level of US$870 billion seen in early 2008, he said.
In my view, monetary policymakers should give more consideration to structuring the balance sheet to provide more leeway for policy measures to be taken when the next economic downturn occurs.
“It is unrealistic to expect the Fed’s balance sheet to return to the size it was before the financial crisis,” he said.
