‘NEED FOR GRADUAL RATE HIKES’
Fed Boston president warns against being too sensitive to short-term economic data
UNITED States Federal Reserve Bank (Fed) of Boston president Eric Rosengren stepped up his argument to keep the US central bank on track for additional gradual interest-rate increases, warning against being too sensitive to short-term economic data.
Answering questions from the audience after delivering a speech in Montreal, Rosengren said inflation would probably be “much closer to two per cent” a few months into next year as the impact faded from notable pricing changes for mobile phones and certain pharmaceuticals that had helped keep levels low this year.
“Inflation expectations in the US are well anchored,” he said, with wages ticking up but growth still subdued, given a jobless rate that fell last month to 4.2 per cent, a 16-year low.
“It’s still not the level that I would expect it to be, but we’re definitely seeing that tighter labour markets are causing wages and salaries to gradually go up as well,” said Rosengren at a conference of the International Atlantic Economic Society.
The long-time Boston Fed chief, who’s not a voter on the rate-setting Federal Open Market Committee this year, argued in his published remarks for the “continued gradual removal of monetary policy accommodation”.
Weighing into the debate over weak inflation and its implications for monetary policy, Rosengren cautioned his colleagues against concluding that surprisingly slow price rises, despite falling unemployment, signalled fundamental and lasting changes in the US economy.
“Low inflation readings have provided monetary policymakers the opportunity to take a more patient approach to removing accommodation than in recent recoveries,” he said.
However, “failing to respond to tight labour markets with rates remaining negative in real terms could risk unnecessarily shortening the economic recovery”.
Some Fed policymakers contend that the central bank should be cautious on tightening policy until they are more confident that inflation would bounce back to the Fed’s two per cent target.
“Policymakers tend to place too much weight on short-term fluctuations in their real-time estimates of long-run concepts,” said Rosengren. Bloomberg