Boston Fed President Eric Rosengren delivered a speech titled Ethics and Economics Making Cyclical Downturns Less Severe yesterday. There he argued that Fed shouldn’t let the economy “run above capacity” and “fall far below the sustainable unemployment rate”. He noted it’s the path that will “increase the probability of a longer recession-free period”.
It should be noted that unemployment rate, currently at 3.8% in May, is already quite far below Fed’s longer run rate at 4.5%. But where the real natural rate is, it’s still up for debate.
Also, Rosengren repeated his push for inflation range target. He said “one might allow the inflation target to rise within the range during periods of low real rates, thus providing more room for the funds rate to fall during an economic downturn.”
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