Eric Rosengren, president of the Federal Reserve Bank of Boston, said Friday that he dissented from this week’s decision by the central bank to pull back on its stimulus policies, arguing that the unemployment rate remains too high and inflation too low.
Rosengren was the lone dissenter among Federal Reserve policy makers, who voted Wednesday to trim monthly bond purchases to $75 billion from $85 billion because of the improving economy.
Those purchases aim to spur a faster recovery by pumping money into the economy and lowering long-term interest rates, such as for mortgages.
In a prepared statement, Rosengren said the economy had improved, but not enough to justify reducing the Fed’s stimulus.
Rosengren cited a national unemployment rate of 7 percent in November, almost 2 percentage points higher than the 5.25 percent considered a full-employment level, and persistently low inflation, now running at an annual rate of less than 1 percent.
Permitting such a low level of inflation puts the economy at risk of slipping into deflation should it experience a shock, Rosengren and other economists say. Deflation is a destructive cycle of falling prices, declining production, and rising unemployment.
The Great Depression is perhaps the best known example of a deflationary economy.
“I too, expect the economy to continue to improve,” Rosengren said in his statement.
“But by the same token, I do not yet have sufficient confidence in this outlook to risk the removal of any monetary [stimulus] at this time.”