MNI Fed's Rosengren: Dec Hike, Gradual Tightening Appropriate

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Bank of Boston President Eric Rosengren

on Wednesday voiced his support for a December interest rate increase, saying a

gradual path of monetary tightening is the most balanced path forward for the

central bank despite stubbornly low inflation. 

     Most signs point to very tight labor markets, while the recent weakness in

inflation appears to be driven by temporary factors, he said in remarks prepared

for an economic policy forum at Northeastern University in Boston. 

     "My own view is that it is quite likely that unemployment will fall below 4

percent, which is likely to increase pressures on inflation and asset prices. In

my view, that suggests the need to continue to gradually remove monetary policy

accommodation, which is quite consistent with market expectations of another

increase in December," said Rosengren, who does not vote on rates this year. 

     That inflation remains below target would suggest "added patience in

removing accommodation," he said, but it is likely due more to "temporary

idiosyncratic factors, coupled with a somewhat flatter Phillips Curve" than

globalization and technological changes. 

     Fed officials expect to see a return to the 2% target within the next two

years, while unemployment could stay below its longer term sustainable rate "for

a good deal longer," Rosengren said. He estimates a 4.8% unemployment rate is

consistent with maximum employment, six-tenths above the current rate. 

     "While low inflation allows monetary policymakers to remove accommodation

gradually, it remains the case -- in my view -- that a gradual increase in

interest rates is the balanced approach to reaching both of the Federal

Reserve's mandates in the next several years," he said. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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