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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: firstname.lastname@example.org