In World Economy News 23/09/2016
Federal Reserve Bank of Boston President Eric Rosengren said the U.S. central bank’s failure to get back to a strategy of gradual rate increases may threaten the ongoing U.S. economic recovery.
“I am arguing for modest, gradual tightening now, out of concern that not doing so today will put the recovery’s duration and sustainability at greater risk,” Rosengren said Friday in a statement. He was explaining his dissent from his colleagues’ decision Wednesday to keep interest rates on hold for a sixth straight meeting.
Rosengren, who long favored keeping rates ultra-low in order to boost employment, said failing to tighten policy could generate “the sorts of significant imbalances that historically have led to a recession.”
Rosengren was the most notable among three voters on the Federal Open Market committee who called for a rate increase when the group met this week in Washington. The rest of the committee’s current 10 voters elected to keep rates unchanged “to wait for further evidence of continued progress” in the economy, according to a statement that followed the meeting.
Rosengren has swung in favor of rate increases in recent months as unemployment declined to 4.9 percent, at or very close to most estimates of its lowest sustainable level.
“By 2019, I expect the unemployment rate to have declined below 4.5 percent,” Rosengren said Friday. “While I have a long track record of advocating for policy that supports robust labor market conditions, that is below the rate that I believe is sustainable in the long run.”
Rosengren was joined in his dissent Wednesday by Cleveland Fed President Loretta Mester and Kansas City Fed chief Esther George.
Source: Bloomberg
