Federal Reserve Bank of Boston President Eric S. Rosengren lauded the Fed’s loose monetary policy today in a speech to the Global Interdependence Center Central Banking Conference in Milan, saying the Fed’s efforts to increase the money supply and keep interest rates low continue to be necessary to keep the economy growing in the face of government spending cuts.

"[S]ome have suggested that the slow recovery proves that recent monetary policy actions have been ineffective. However, contrary to what these observers claim, I would argue that the ‘miss’ on outcomes is not evidence of monetary policy ineffectiveness," Rosengren said, according to a text of his prepared remarks. "In fact, in the sectors of the economy that are likely to be most responsive to lower interest rates, like housing and consumer durables, recent growth has been quite rapid. Contrary to the notion that policy has not succeeded, I would actually say that monetary policy has been quite effective in offsetting the contractionary effects of recent fiscal policies."

Rosengren said that with inflation a full percent below the Fed’s 2 percent target and U.S. unemployment still too high at 7.5 percent, the Fed should continue its efforts to keep interest rates low for the foreseeable future, deferring efforts to cut spending and trim the deficit.

"[L]ong-term sustainable solution for fiscal balance is absolutely in the country’s interest. But timing is an issue. We have suffered a severe financial crisis, a deep recession, and a painfully slow recovery… given the economic realities I would urge policymakers to consider scenarios where some elements of [budget cuts and/or tax increases] take effect only after the economy has more fully improved," his remarks concluded.