Boston Fed’s Eric Rosengren predicts slow growth, calls for more action to help economy

By Megan Woolhouse, Globe Staff

Eric S. Rosengren, president of the Federal Reserve Bank of Boston, on Wednesday made gloomy predictions for a slow economic recovery through the year, calling on policy makers to do more to lower the US unemployment rate.

“I am expecting growth of only 2.3 percent for the full year, I’m sorry to say; and unfortunately no improvement in the current US unemployment rate of 8.1 percent,” Rosengren said in a speech in Worcester. He added that he believes the Federal Reserve should take additional steps -- though he did not specify what steps -- to lower the unemployment rate.

“The US, like many other countries, needs to facilitate a more rapid recovery,” Rosengren said.

Rosengren’s remarks to the Worcester Regional Research Bureau echoed those made by Federal Reserve Chairman Ben S. Bernanke earlier this month. Bernanke told the National Association for Business Economics earlier this month that improving the unemployment rate will “likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued [stimulative} policies.”

The central bank has held its key short-term interest rate near zero for more than three years and bought $2.3 trillion in Treasury bills and other debt securities to drive long-term rates, such as mortgages, lower. Some analysts have suggested that the Fed could launch another round of bond purchases to provide additional stimulus to the economy.

Opponents of such a move, which include some Fed officials, have criticized such efforts saying they run the risk of triggering a dangerous rise in inflation.

Rosengren said Wednesday that he expects inflation to remain below 2 percent this year. He acknowledge that his forecast is “a little more pessimistic” than other members at the Federal Reserve’s Open Market Committee, which sets interest rate policies. meeting in April.

Rosengren said “significant headwinds” including the continuing debt and financial crisis in Europe and declining US government and business spending have contributed to his expectations for lackluster growth. Additional political unknowns, including whether the U.S. government leaders will be able to reach an agreement about the expiration of unemployment benefits and payroll tax cuts -- or risk dropping off a so-called “fiscal cliff -- have also tempered his expectations, he said.

“This is a particularly difficult time to forecast the economy, given that significant political decisions can influence economic actions,” Rosengren said of both the US and European situations. “To the extent that concerns over a possible worsening of future European economic problems and a possible U.S. fiscal contraction make U.S. businesses more tentative, these worries about the future can impede a more rapid recovery now.”

Megan Woolhouse can be reached at mwoolhouse@globe.com.