Another round of quantitative easing by the Federal Reserve is "certainly a possibility" if there is a "bad economic shock," Boston Fed President Eric Rosengren told CNBC Wednesday.
"It depends on what you think is the likelihood of what a bad economic shock is," he said. "So if you think there’s a shock from Europe, or you think that some of the fiscal discussion is gonna break down, those might be the types of incidents…[that] might affect how likely you think it is that we’ll have additional quantitative easing ."
Deflation would be another condition "under which it would make sense to have additional quantitative easing," he added.
Rosengren was interviewed after speaking at the Boston Fed's annual conference. He said it is "critical that we focus on strengthening the financial architecture" of U.S. banks "so that the struggles of one institution or group of them no longer poses risks to the broader global economy."
To CNBC he said most U.S. banks don't have huge direct exposure to the troubles in Europe. But "if a serious problem erupted in Europe, we would not be immune," he said, and that might be something the Fed would "have to react to."
He said he favors a plan put forth by Chicago Fed President Charles Evans that would set unemployment and inflation targets that, when reached, would prompt the Fed to end its accommodating monetary policy.
"I think we have to get an agreement on what those targets would actually be in unemployment and in inflation. But I do think it’s somewhat artificial to be focused just on calendar time," he said. "Really, what we want are good economic outcomes and that probably is what we should be targeting."
He said a 2.5 percent to 3 percent inflation target and a target unemployment rate of 7 percent "would certainly be grounds for taking away some of the accommodation."
He said current forecasts of 2 percent to 2.5 percent economic growth in the second half of the year is "not as good as we'd like but it's better than what others were predicting just a few weeks ago. I think it is a positive sign."