By Svea Herbst-Bayliss
BOSTON (Reuters) – The U.S. Federal Reserve should raise interest rates three more times this year due to the strength of the economy, Boston Fed President Eric Rosengren said on Wednesday.
“The base case (for 2017) would be four tightenings, reflecting the strength of the economy that I believe justifies more regular normalization of interest rates,” Rosengren said in a speech to the Boston Economic Club.
Rosengren, previously a long-time dove, last year began pushing for tighter monetary policy on fears that not raising rates amid strengthening economic data risked policymakers having to make faster-than-expected rate increases later on.
The Fed, at its March policy meeting, lifted the benchmark interest rate by 25 basis points to a target range of between 0.75 and 1 percent. It was the second hike in three months as the central bank continues to move away from near zero. The median forecast of the Fed’s 17 policymakers then was for two further rate increases this year.
With the unemployment rate at 4.7 percent and inflation rising toward the Fed’s 2 percent target rate, Rosengren noted that the risks are rising if the Fed waits too long to embark on a more regular pace barring a deterioration in economic indicators.
“If the economy runs too hot, it could ultimately require a less gradual monetary policy adjustment – which could potentially place at risk the significant progress the economy and labor market have made since the Great Recession,” he said.
The Boston Fed chief added that it seems likely the Fed will reach its goals on full employment and inflation by the end of 2017.
As for the Trump administration’s fiscal plans, Rosengren said that it was a source of uncertainty.
“We’ll see what actually gets adopted by Congress,” he said, adding that there were other events to keep an eye on, including Britain’s divorce from the European Union, elections in France and Germany and the possibility of a bigger-than-expected slowdown in Asia.
Rosengren had previously said in mid-February that he saw “at least” three rate hikes as being needed this year to keep the economy on an even keel. He does not have a vote on the Fed’s rate-setting committee this year, but takes part in deliberations.
The Fed’s next policy meeting is scheduled for May 2-3.
(Writing by Lindsay Dunsmuir; Editing by Chizu Nomiyama)