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CNBC Transcript: Boston Federal Reserve President Eric Rosengren

CNBC Transcript: Boston Federal Reserve President Eric Rosengren

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Published by CNBC
Following is the unofficial transcript of a CNBC Exclusive interview with Boston Federal Reserve Bank President Eric Rosengren on CNBC’s “Closing Bell,” Thursday, October 14, 2010.
Following is the unofficial transcript of a CNBC Exclusive interview with Boston Federal Reserve Bank President Eric Rosengren on CNBC’s “Closing Bell,” Thursday, October 14, 2010.

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Categories:Types, Business/Law
Published by: CNBC on Oct 15, 2010
Copyright:Attribution Non-commercial


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Following is the unofficial transcript of a CNBC EXCLUSIVE interviewwith Boston Federal Reserve Bank President Eric Rosengren on CNBC’s“Closing Bell,” Thursday, October 14, 2010.All references must be sourced to CNBC.************STEVE LIESMAN: Thanks very much. You have to make a decision innot too many weeks from now-- President Rosengren, thanks for joining us.ERIC ROSENGREN: Thank you for having me here.STEVE LIESMAN: So we're on the eve of this Fed conference that-- youplanned a long time ago. And it's about monetary policy in a low-inflation environment. Most of the market expects the Federal Reserveto do additional quantitative easing. Is most of the market right?ERIC ROSENGREN: Well, I think we're gonna have to discuss whetherwe do quantitative easing or not. And that's one of many options thatthe Federal Reserve has. Let me talk a little bit about what the impactupon …easing might be so that people can understand why we mightor might not do it. There are a number of different channels thatquantitative easing works through. The most obvious one is for buying an asset like a Treasury Bond.When we purchase the Treasury Bonds, price goes up, the interest rategoes down. But we're not primarily interested in Treasury Bonds. We'reinterested in long-term instruments like mortgage-backed securitiesand corporate bonds. Experience has showed that when we buy thosetreasury securities, those other assets also have their rates go down aswell. That stimulates the economy by helping both housing and-- and
investment. There're a number of other channels that it also worksthrough if you have a minute for me to--STEVE LIESMAN: Sure, go ahead.ERIC ROSENGREN: --just talk about those other channels. Anotherchannel that it works through is that it affects short-term interest ratesthat people interpret-- that action as affecting when monetary policymight change again.STEVE LIESMAN: But this has been criticized for-- you know, rates arealready low. It's weakened the dollar. And it's gonna cause inflationand maybe massive inflation down the road. How do you respond tothat predicament?ERIC ROSENGREN: So, the idea is that we wanna stimulate demand.STEVE LIESMAN: Right.ERIC ROSENGREN: So, part of the problem that we're trying to addressis that the inflation rate is lower than we'd like. So the inflation rate,the foreign inflation rate's roughly one percent. The FOMC has saidthey'd like to get it closer to two percent. And so right now, the goal isnot to have further disinflation. So if you have a Fed funds rate that'sfixed and the inflation rate goes down, that's a tightening. We don'twant a tightening with the economy this weak. So we actually wannaprevent further disinflation from occurring. And this is one way to dothat.STEVE LIESMAN: What I really wanna ask you is, "How much are yougonna do?" But I understand-- in this environment, that's a sensitivequestion. So, feel free to answer that. But, if not, how do you figure outhow much to do? How do you calibrate the amount of quantitativeeasing that's A, gonna lower interest rates by X amount, or B, create Xamount of GDP growth or lower the unemployment rate?ERIC ROSENGREN: So, whether or what we do depends on what'shappening in the economy. And so we have to look at over theintermediate term, what's the likelihood that we get the fullemployment and get the two percent inflation? And so we scale it bysaying, "How far away are we from where we wanna be?" That partlydepends on incoming data. There-- also depends on our forecast forthe economy overall.It's why we have to meet every six weeks to decide what theappropriate size is, because if the economy grows much more quickly,
we may not have to do anything or we may not have to do as much. If the economy grows much more slowly, then we're gonna move furtheraway from where we wanna be on our two parts of our dual mandate.STEVE LIESMAN: Do-- do you feel as if the economy can grow quicklyenough now to get unemployment back to a place where you arecomfortable with, additional help?ERIC ROSENGREN: So I think it's going to take a while before we getto-- full employment, whether or not we do anything. What additionalquantitative easing would potentially do is bring down theunemployment rate faster than it otherwise would come down.STEVE LIESMAN: Eric, you're also known as the person who's-- deeplyinvolved in the financial system. Right now, there's a big mortgagedocumentation vest. Is that something the Federal Reserve is watchingcarefully? Is the Federal Reserve involved in that? What is your role in--in regards to this documentation, as is there concern about systemicrisk?ERIC ROSENGREN: So, it's certainly something that we follow veryclosely and are worried about. The housing sector's a very importantsector in the economy. And obviously-- the mortgage market doesn'twork efficiently, that is a problem for tryin' to get housing to work moreeffectively.STEVE LIESMAN: You-- we asked you for some charts that you-- 'causeyou're-- you're famous for your charts and-- and-- and slides that youbring in your presentations. And it's a little scary that the first thingyou showed us was one from Japan. Explain to us what the chart--shows.ERIC ROSENGREN: So, this partly reflects-- what our conference wasabout, as our conference originally occurred in October of 1999.STEVE LIESMAN: Right.ERIC ROSENGREN: And one of the main topics at that point wasactually what was happening in Japan. And at that time, there was adeflation problem in Japan. But it was just starting. And the analysis of most the participants at the conference was that deflation was going tobe under control very quickly. As this chart shows, deflation was notunder control at that time. In fact, we didn't have deflation continuingto get much worse. But we did have a persistent deflation problem in Japan.

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