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REPEAT:MNI POLICY:Fed Rosengren Sees Mildly Restrictive Rates

Repeats Story Initially Transmitted at 16:55 GMT Oct 1/12:55 EST Oct 1
By Jean Yung
     WASHINGTON (MNI) - Federal Reserve Bank of Boston President Eric Rosengren
on Monday repeated his call for the central bank to raise interest rates
gradually to a "mildly restrictive stance" over the next few years despite
recognizing "clear signs of rising risk" from abroad. 
     Newly-announced tariffs imposed by both the United States and China
heighten concerns that trade restrictions could hurt the two economies, while
stress in emerging markets and in the European banking system could threaten
global growth. 
     Assuming the potential global risks do not materialize, "I believe that
continuing to raise short-term rates gradually, until monetary policy becomes
mildly restrictive, is likely to be appropriate and beneficial over the long
term," Rosengren said. 
     The Fed last week raised interest rates by another quarter point to a
target range of 2% to 2.25% and projected that rates would rise to 3.4% by 2021,
nearly a half point higher than their estimated neutral rate of 3%. 
     The U.S. economy continues to sustain strong growth momentum, he said. That
is likely to lead to further tightening in the labor market and the "likely
buildup of economic imbalances, including, but not limited to, inflationary
pressures," he said.  
     Inflation has been well contained to date and analysts expect it to remain
just above 2% this year and next. But "I personally believe there are some
upside risks to this outlook," Rosengren said. 
     Running the economy too hot risks stoking inflation and upsetting financial
system stability, either of which could call for a "forceful" response by the
Fed to raise interest rates rapidly. 
     "The history of rapid rate increases in the U.S. suggests that such a risk
is real," Rosengren said. 
     Therefore, "I believe that continuing to raise short-term rates gradually,
until monetary policy becomes mildly restrictive, is likely to be appropriate
and beneficial over the long term." 
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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