Rosengren says Fed decision not to reduce stimulus well warranted
Oct 11 (Reuters) - A top Federal Reserve official on Friday defended the U.S. central bank's decision to not scale back its pace of monetary stimulus, citing economic data and looming fiscal risks, although he admitted that the Fed may have fumbled its message.
The vote last month to hold steady on buying bonds at a monthly pace of $85 billion came as a big surprise to markets, sparking volatility and muddying market views about the outlook for interest rates in a way that policymakers had not intended.
"Given those data and risks, in my view continuing the asset-purchase program was warranted, and fully consistent with seeking to return to full employment and 2 percent inflation within a reasonable timeframe," Eric Rosengren, president of the Boston Fed, said in remarks prepared for delivery at the Council on Foreign Relations in New York.
Still, Rosengren, a policy dove who is a voter this year on the policy-setting Federal Open Market Committee, saw flaws in the way central bankers communicated their message.
In remarks that focused on the challenges of communicating the intentions and direction of unconventional policy measures, Rosengren said the Fed must continue to explore better ways to communicate with financial markets and the public in order for unconventional monetary policies to work effectively.
"The experience of the past several months makes it clear that a data-driven policy that also considers the risks to our forecasts can be difficult to communicate, because the policy will necessarily change as we update our forecasts and risk assessments in the face of new economic data," he said.
However, Rosengren offered little in the way of concrete proposals to help smooth Fed communications.
He also countered the notion that asset purchases, also known as quantitative easing, had become less effective.
"The recent market reactions provide a challenge to the view, argued by some, that the purchase program has no impact - since asset prices seem so sensitive to announcements of even a potential, modest reduction in purchases sometime in the future," he said.
"Recent monetary policy actions can have - and have had - a meaningful impact on the economy."
(Reporting by Pedro Nicolaci da Costa; Editing by Leslie Adler)