The two-and-a-half week government shutdown and prolonged partisan gridlock in Washington, D.C., has helped to slow the country's economic recovery, one of the top financial officials in the country said.
"You wouldn't run a business by threatening to shut it down every six weeks," Eric Rosengren, president of the Boston Federal Reserve Bank, told the Herald. "Unfortunately economic conditions haven't improved as anticipated in part because of the headwinds created by the fiscal discussion."
The focus on reducing government spending, while not a bad goal in general, has meant a slower recovery than in the past, Rosengren said. "Normally government spending is picking up during recovery, this time the opposite's been true," he said.
The shutdown and looming threat of another budget fight in months is preventing businesses and employers from making long term plans, he said.
Businesses invest and hire, Rosengren said, when they "think business prospects are going to improve," something that is now hard to determine. In turn, unemployment rises and limits overall spending and economic growth.
The level that the central bank should be propping up the economy through its $85 billion per month bond buying program remains dependent on economic progress, largely gross domestic product. "We should begin reducing our purchases when it's clear the economy is growing faster than 2 percent," he said.
Last week, IHS Global Insight reduced its forecast for fourth quarter GDP to 1.6 percent, from 2.2 percent. Rosengren said he thought the shutdown alone would take a few tenths of a percent off of GDP.
Rosengren also countered criticism of Janet Yellen, President Obama's nominee to replace current fed chairman Benjamin Bernanke when his term expires next year. Critics have called Yellen more of an academic economist than a practical one, a notion Rosengren dismissed.
"I think she actually does have a perspective that's very practical and pragmatic," he said. "I would expect her to do a wonderful job."
Rosengren said Yellen's experience, including serving as the vice-chairwoman of the Federal Reserve Board and previously as the president of the San Francisco Fed, give her plenty of practical knowledge and expertise.
"It's not like those positions are an ivory tower," he said.
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