A US central banker said on Wednesday he favors four increases in the key interest rate this year, one more than projected by the majority of Federal Reserve policymakers.
Boston Federal Reserve Bank President Eric Rosengren, previously known for supporting the Fed’s ultra-accommodative policy, seems to have had a drastic change of opinion, and now is concerned about preventing the economy from overheating.
The Fed already raised interest rates by a quarter of a percentage point in March — following a similar move in December — and policymakers on the Fed’s Federal Open Market Committee (FOMC) project two more increases in the benchmark federal funds rate over the next six meetings in 2017.
But in a speech in Boston, Rosengren argued for “an increase at every other FOMC meeting” which would be consistent with the gradual pace of tightening that central bankers have argued for.
“Looking ahead over the course of this year, I believe it is likely to be appropriate for the FOMC to raise rates at a more regular — though still gradual — pace,” he said.
The Fed official stressed that “it is important to avoid creating an over-hot economy that could require a more rapid tightening of monetary policy” which could jeopardize “the economic improvements seen to date.”
Rising prices and wages as well as increasing stock and real estate values are warning signs in an economy with very low unemployment — in 16 states it is below four percent — making for a tight labor market, he said.
Rosengren, who does not vote in the FOMC this year but participates in the committee’s discussions, does not mention as factors in his view the Trump administration promised stimulus, including tax cuts and infrastructure spending.
Throughout the recovery in the wake of the 2008 financial crisis, Rosengren was part of the “doves” camp, supporting the Fed’s very stimulative monetary policy with zero interest rates for years to buoy the economy.
But in September 2016, he joined two “hawks” in casting a dissenting vote when the FOMC decided to keep rates on hold.
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