Federal Reserve Bank of Boston leader Eric Rosengren said Tuesday he sees no looming reason right now to either cut or raise short-term interest rates any time soon.
“Given the recent cuts in the federal-funds rate, and the fact that monetary actions take effect with some lag, I would say that this is a good time to patiently assess the economy,” Mr. Rosengren said in the text of a speech to be presented at a gathering of the Forecasters Club of New York. “I do not see a need for additional policy easing unless there is a material change to the forecast.”
Mr. Rosengren’s comments were his first since last week’s Federal Open Market Committee gathering. Then, policy makers maintained their overnight target-rate range at between 1.50% and 1.75% after lowering it three times over the latter half of the year. Officials penciled in no change in rates for 2020, and earlier Tuesday, Dallas Fed leader Robert Kaplan said he agreed with that steady outlook.
Mr. Rosengren opposed all three of those cuts along with Esther George of the Kansas City Fed. Both officials said that while risks to the outlook were real, the performance of the economy was strong enough to hold off on lowering rates until actual trouble materialized. They also worried that lowering rates in a strong economy might set the stage for too much risk taking in financial markets. Mr. Rosengren reiterated Tuesday he is still worried low rates might create financial trouble over the longer haul.
The Fed’s current forecasts show that four officials favor raising rates in 2020 against a strong majority that see them holding steady. Mr. Rosengren didn’t say if he wants an increase in his prepared remarks.
Although he was a strong opponent of lower rates in 2019, Mr. Rosengren said now is a time for the Fed to be “patient for a fairly material period of time until we actually see a significant change in the outlook.” Most forecasters don’t see any notable changes in monetary policy and “that’s my own expectations” as well, Mr. Rosengren said, adding, “hopefully this is going to be a boring year for monetary policy.”
Mr. Rosengren also said that because the 2019 cycle differed so much from other rate-cutting periods, he isn’t sure what happens for the Fed going forward. When it comes to raising rates, “how you take it back and why you take it back is less clear” now, the official said.
In his remarks, Mr. Rosengren was upbeat about the outlook. “Labor markets are strong, inflation is moving to target, and growth is likely to be somewhat above potential,” he said.
He added that while it is likely the unemployment rate will stay near current levels, “it is an economy where labor markets might be expected to strengthen further.” He also said worries about trade tensions and global growth “appear to have abated somewhat.”
Mr. Rosengren also said “it is unlikely we will have an economic downturn in the coming year, given the generally positive financial conditions and the continued accommodative monetary and fiscal policies.” He noted that the Fed’s rate cuts had likely taken the federal-funds rate target “much lower” than the neutral level, meaning monetary policy is providing considerable stimulus to the economy right now.
In his prepared remarks, Mr. Rosengren also said financial markets, which for much of the year held a more pessimistic view than economists, appear to have gotten ahead of themselves.
“Several months ago the financial news seemed to highlight the increasing likelihood of an economic downturn, but more recently those concerns appear to have subsided,” Mr. Rosengren said. “In other words, financial market practitioners may have priced in slightly more risk to the economy, but economic forecasters saw the most likely outcome as economic expansion.”
Write to Michael S. Derby at [email protected]
(END) Dow Jones Newswires
December 17, 2019 14:38 ET (19:38 GMT)
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