Years of low interest rates made the current economic crisis worse, Fed’s Rosengren says

 

The Federal Reserve Bank of Boston’s President and CEO Eric S. Rosengren. Keith Bedford | Reuters

KEY POINTS

• Boston Fed President Eric Rosengren said years of low interest rates that encouraged risk-taking are making the current economic downturn worse.
• He specifically cited “low rates persisting for an extended period even after the economy has made progress in the recovery” that can create problems.

Years of low interest rates led to excessive risk taking in commercial real estate and will make the current economic downturn even more severe, Boston Federal Reserve President Eric Rosengren said Thursday.

The central bank official said he expects a wave of defaults and bankruptcies to hit that will aggravate an unemployment problem that has hit lower-wage workers disproportionately.

Regulatory authorities, he added, should have been able to see conditions building up that would make any unexpected crisis worse.

“Clearly a deadly pandemic was bound to badly impact the economy,” Rosengren said. “However, I am sorry to say that the slow build-up of risk in the low-interest-rate environment that preceded the current recession likely will make the economic recovery from the pandemic more difficult.”

The Fed has been at the center of the coronavirus pandemic crisis response, slashing already-low interest rates and implementing a slew of programs to ensure market functioning and lend money to areas of the economy in need.

In recent days, it has adapted an even more dovish approach to monetary policy, pledging not to raise rates even if inflation runs above the Fed’s preferred 2% target.

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Source: Jeff Cox | CNBC