President-elect Joe Biden’s proposed stimulus plan is the right medicine for an economy likely to see substandard growth in the first half of 2021, Boston Federal Reserve President Eric Rosengren said Friday.
As the first central bank official called to publicly speak on the Biden plan, he said he was comfortable with the aggressive fiscal action despite a nearly $2 trillion price tag that will take an already debt-laden federal government deeper into the red.
“It’s a big package, but I think it’s appropriate,” he told CNBC’s Steve Liesman during an interview on “The Exchange.” “The economy is in a lull right now.”
The Biden plan looks to spend $1.9 trillion on a variety of measures tied directly to the impact that the Covid-19 pandemic has had on the economy, like direct cash payments and extended unemployment benefits, as well as on items that are tangential, like raising the federal minimum wage and cash to schools.
Fed officials for months have been calling on Congress to provide more fiscal aid.
“While it’s a very big package, I do think until we get to the point where people have been vaccinated, where businesses have been bridged, and where many of the unemployed workers have come back to work, we need an expansionary fiscal policy,” Rosengren said. “And to the extent that it targets those parts of the economy most affected by the pandemic, that is the appropriate action for fiscal policy at this time.”
Though it’s uncertain how much spending Congress will approve, the money will go to an economy that Rosengren thinks will struggle through the first half of the year then rebound sharply.
Still, he said fiscal and monetary policy really isn’t the problem at this point, but rather that “we have the wrong pandemic policy.”
“Too many people are infected and we’re being too slow to get shots in the arm,” he said.
Fed policy now is set to be accommodative, and that’s unlikely to change anytime soon. Chairman Jerome Powell on Thursday reiterated his belief that interest rate increases or changes to the central bank’s asset purchase program are coming anytime soon as the Fed seeks to meet its goals on employment and inflation.
Though Rosengren has warned in the past about financial stability issues that could arise from easy Fed policy, he also said that’s not his main concern now as he said the purchases of Treasurys and mortgage-backed securities have helped the recovery.
“My financial stability concerns are really about what happens when the economy is much stronger than it is today,” he said.
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