"I expect that appropriate monetary policy will need to
normalize more quickly than over the past year," Rosengren said
in remarks prepared for delivery to the Connecticut Business and
At 4.7 percent, unemployment is now at a level that is
sustainable over the long-run, he said, and inflation is on
track to reach the Fed's 2-percent target by the end of this
"Without further gradual increases in interest rates, one might
be concerned that the unemployment rate could drift below its
long-run sustainable level – and as a result, inflation could
eventually exceed the Fed's 2 percent target," he said. "The
stance of monetary policy will need to adjust – to prevent the
economy from dramatically overshooting on both elements of the
dual mandate, which would place the economic recovery at risk."
Rosengren, who does not vote on the Fed's policy-setting
committee this year, was long considered a dove, supporting low
rates to boost employment even at the risk of some inflation.
Over the past year he has adjusted his stance to be more
hawkish, calling for rate hikes even as the Fed kept policy on
hold for most of the year. On Monday, he explained that shift as
a reaction to the strengthening economic data.
The Fed raised interest rates last month by a quarter of a point
and policymakers signaled they expect to raise rates three more
times in 2017.
That pace, which is faster than markets currently expect, "seems
reasonable if we continue to see real GDP growing faster than
the so-called 'potential' rate," Rosengren said.
While the growth outlook does not require the Fed to raise rates
at every Fed policy-setting meeting, as it did during the last
tightening cycle from 2004 to 2006, the Fed does need to reduce
monetary policy accommodation, he said.
"My own forecast is that we will achieve both elements of the
dual mandate by the end of 2017 – and as a result, I believe
that a still gradual but somewhat more regular increase in the
federal funds rate will be warranted."
(Reporting by Ann Saphir; Editing by Jacqueline Wong)
[© 2017 Thomson Reuters. All rights
Copyright 2017 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.