The three interest rate hikes projected in the Federal Reserve Summary of Economic Projections is a starting point for this year if the economy grows as projected, Federal Reserve Bank of Boston President and CEO Eric S. Rosengren said Wednesday.
"[I]t is my view that it will likely be appropriate to raise short-term interest rates at least as quickly as suggested by the Fed's current SEP median forecast, and possibly even a bit more rapidly than that forecast," Rosengren told the New York Association for Business Economics, according to prepared text released by the Fed. "Importantly, if GDP is growing faster than potential and we reach both elements of the dual mandate, the Federal Reserve risks 'overshooting,' potentially jeopardizing the very significant progress of the U.S. economy since the financial crisis."
The economy continues improving and forecasters see "above-potential growth and a gradual tightening in labor markets," a path Rosengren said "would justify a continued, gradual removal of monetary policy accommodation at least as quickly as suggested by the current SEP, and possibly even a bit more rapidly than that forecast."
Although he sees the economy continuing to grow at its recent pace, the "starting point" has changed. The 4.8% unemployment rate matches the median long-run forecast in the SEP, and is "only 0.1 percent above my own estimate of full employment," Rosengren said.
This suggests limited room for further tightening before it could stir inflationary pressures, he said.
"[I]nflation is now close enough to the Federal Reserve's 2 percent target that it is possible that we will reach the target as soon as the end of this year."
