(RTTNews) -  Boston Federal Reserve President Eric Rosengren said Friday that it is important that monetary and fiscal policy support the economy until it can be guaranteed that economic recovery can continue once such support is removed.

Speaking before the Greater Boston Chamber of Commerce, Rosengren warned that the economic recovery in the U.S. was fragile and could still possibly fall short of expectations.

"We have historic precedent for accommodative policies that were removed too quickly, thus exacerbating to a significant degree the financial and economic troubles facing a nation," he said.

The Boston chief stressed that policymakers need to be sure that the economy "continues on a path that will bring the unemployment rate down," while also beginning to remove policy accommodations when the time comes.

It was reported Friday that the unemployment in the U.S. rose again, edging up to 9.8 percent, its highest rate since 1983.

Speaking about inflation, Rosengren said that inflation should remain low in the next several years, despite the large growth in the Fed's balance sheet during the financial crisis. He added that the increase was designed to diminish as the economy recovers.
"Most of the programs initiated last fall were designed to be attractive during periods of financial stress and less attractive (that is, quite costly for the participant) during less stressful periods - thus encouraging firms to seek funds from sources other than the Federal Reserve when market conditions were more normal," he said.

Rosengren said that the primary short-run concern in the U.S. should be disinflation because of excess capacity in the economy and labor markets.

He added that the growth rate of the core PCE inflation index is at 1.3 over the past year - below the 2 percent rate expected by the Fed's Federal Open Market Committee - and that it is important that policy not only need to make sure that inflation doesn't get too high, but also make sure it doesn't get too low.

"This significant excess capacity in labor markets has the potential to be disinflationary at a time when the inflation rate is already below where we expect it to settle in the long run," he said.

Rosengren said that, ultimately, financial markets and the economy need more time to heal, especially because of weaknesses in the housing market (mortgage application volume fell 2.8 percent last week, despite mortgage interest rates falling to their lowest levels since May) and credit conditions.

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