Boston Fed chief upbeat about region’s economy
Greater Boston’s economy is poised to extend its strong run of growth as the region builds on its highly educated workforce and innovative companies, said Eric S. Rosengren, president of the Federal Reserve Bank of Boston.
Rosengren, speaking Friday with Globe editors and reporters, cited an unemployment rate below the national average, an influx of young workers eager to live in Boston, and the cranes dotting the skyline as evidence of the city’s thriving economy
He also pointed to last week’s decision by General Electric Co. to move its headquarters to Boston’s Seaport District from Fairfield, Conn.
“There’s a lot of optimism,” Rosengren said. “The economy in the Greater Boston area looks very favorable.”
Rosengren, who has led the Boston Fed since 2007, addressed a variety of issues in an interview that touched on monetary policy, economic development, and the outlook for the local and national economies. He said the greatest threat to the US and New England economies is a global slowdown that has contributed to plunging oil and stock prices.
On Friday, crude oil fell below $30 a barrel for the first time in 12 years, and the Dow Jones industrial average plunged nearly 400 points. Despite strong job growth at the end of the year, other recent data have indicated the US economy may be slowing.
The Federal Reserve reported Friday that industrial production fell for the third consecutive month, while the Commerce Department said retail sales declined in December.
Rosengren, who this year becomes a voting member of the Open Market Committee, the Fed’s rate-setting panel, said policy makers will watch data closely as they determine if, when, and by how much to raise short-term interest rates. Last month, the Fed raised its benchmark short-term rate by a quarter-point after having held it near zero for seven years.
“A lot of the weak data has been in the last two weeks,” Rosengren said. “We need more time to see how things shake out.”
The United States has been one of the few bright spots in the global economy as China slows and Europe continues to struggle with fallout from the global financial crisis of 2008, Rosengren said. US employers added 2.7 million jobs last year, and the unemployment rate fell to 5 percent, from 5.7 percent at the beginning of 2015.
The Massachusetts economy, supported by its health care, education, and technology sectors, is performing even better. Unemployment in Massachusetts is down to 4.7 percent, and job growth — the state added 68,000 jobs in the first 11 months of 2015 — is the strongest in 15 years, according to the Labor Department.
Other New England states are also faring well, Rosengren noted. Unemployment in New Hampshire is 3.8 percent, Vermont is down to 3.6 percent, and Maine’s rate is 4.7 percent. Connecticut and Rhode Island are slightly above the national average, at 5.1 percent and 5.2 percent, respectively.
High housing and other costs remain among the biggest challenges to the Greater Boston and Massachusetts economies, Rosengren said. Those costs could discourage the young educated workers on which the local economy will depend from coming to or staying in the region.
Federal Reserve officials are also watching the run-up in commercial real estate prices. In Greater Boston, office buildings and other commercial properties are selling at record prices, and rents in neighborhoods such as Kendall Square are among the highest in the nation. Rosengren said the region learned a painful lesson in the late 1980s and early ’90s, when a tech boom came to an end and a commercial real estate bubble burst.
The collapse in the commercial real estate market took down many banks that had lent heavily to developers and created a credit crunch that led to one of the deepest recessions in New England’s post-World War II history.
“A really good story can become too good of a story,” he said. “I’m not saying that’s the case right now. It’s something to watch that the optimism doesn’t become overexuberance.”