April 12- The U.S. economy may see a significant rebound this year thanks to accommodative monetary and fiscal policy, but the labor market still has much room for improvement, said the President Eric Rosengren of Boston Federal Reserve Bank on Monday.
With monetary policy still remaining significant, and inflation still below the 2 percent target of the Federal Reserve, my perspective is that the current highly virtual stance of monetary policy is appropriate, Rosengren said in a meaningful conversation with business leaders.
The ability to prevent the spread of new variants of the virus would be also important, he said. If the virus variants do not become particularly problematic, we should see an unusually strong recovery after the recession, he said.
Under a new framework that was adopted last year, Fed officials will be low and maintain rates near zero until inflation materializes- no longer raising rates in anticipation of higher inflation when the unemployment rate is low, said Rosengren.
The policymakers are trying to avoid the global economic crisis, and it is possible that the unemployment rate could drop to pre-pandemic levels of about 4% within the next two years, Rosengren said.
While they focus on the recovery, the policymakers should also be vigilant of risks lurking in financial markets, Rosengren said. For example, some funds on the money market faced liquidity problems last year after some investors quickly pulled their money he said.
Solutions could include requiring some funds to invest in government-backed debt more. It could also help develop a system for selling Treasury securities that is not as dependent on broker dealers who can face considerable strain when large volumes of Treasury securities are sold.
During the economic recovery, policymakers should be diligent in removing these risks to financial stability, he said. What are the most effective ways of comparing myself to someone in my life?