Boston Fed chief Eric Rosengren predicts improved economy in 2013

A stronger housing market and robust consumer spending should help the economy heading into 2013, Federal Reserve Bank of Boston chief Eric Rosengren is expected to say at a speech in Providence Tuesday morning, while also cautioning against too much “fiscal austerity” by the federal government.

Eric Rosengren. (Globe File Photo/Wendy Maeda)

Rosengren is scheduled to make his first economic policy speech of the new year before the Greater Providence Chamber of Commerce. In his remarks, which were provided to the Globe in advance, Rosengren argues that Fed monetary policy—keeping interest rates low—has helped the recovery so far.

In particular, he says, low rates are helping drive home and car purchases, as well as durable consumer goods, like appliances and other large-ticket items. He credits central bank policy with this purchasing power, noting that inflation remains at 1.5 percent, well below the Fed’s target rate of 2 percent.

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Rosengren expects growth, which has averaged 2.2 percent annually since June 2009, to accelerate to close to 3 percent in the second half of 2013, “assuming that headwinds from fiscal imbalances around the world are not resolved in economically disruptive ways.”

Uncertainty over the fiscal cliff debate made businesses and households hold back on spending late last year, Rosengren says. In addition, weakness in state and local government revenues has forced budget cuts, which in turn hurts the economy, including the layoff of teachers, police, and other workers.

With continued support from the Fed, Rosengren says, the nation’s current 7.8 percent unemployment rate could decline to 6.5 percent, based on construction returning to 2004 levels and durable good manufacturing regaining half the jobs lost since then.

That would mean adding 2.1 million jobs to the economy, he says, predicting that “would have a meaningful impact on potential employees in those interest-sensitive sectors and also on the broader national labor markets.”