Without "significant negative economic news" before then, the Federal Open Market Committee is on track for a December rate hike, Federal Reserve Bank of Boston President Eric Rosengren said Tuesday.
"With the economy close to full employment and inflation nearing the Fed's target, it was not surprising that the futures market's probability of a tightening in December has been high – in the vicinity of 75 percent – with some volatility around the election," Rosengren told the Portland, Maine, Regional Chamber of Commerce, according to prepared text released by the Fed. "Absent significant negative economic news over the next month, the market's assessment of the likelihood of tightening in December seems plausible."
He added, "Absent significant negative economic news over the next month, the market's assessment of the likelihood of tightening in December seems plausible."
Although he dissented at the September FOMC meeting, Rosengren said he voted with the majority against a rate hike in November since the statement seemed to suggest a December increase. Fearing that waiting too long to tighten could jeopardize the recovery and make it necessary to at some point raise rates faster, he said he pushed for a September increase.
"At the FOMC meeting earlier this month, however, I felt that the changes in the FOMC statement were well aligned with the notion (and the market perception) of a high likelihood of tightening in December. As a result, I did not dissent," Rosengren said.
The economy is near full employment, which he sees at 4.7%, just two-tenths of a point from where it is now, and inflation is creeping up toward 2%.
"In my view, the goal should be to have a continued, sustained economic recovery. To achieve that, we must consider the risks inherent in waiting too long to gradually remove monetary accommodation," he said. "I would much prefer that tightening be gradual, and that policymakers try to avoid circumstances in which we need to tighten more quickly. My concern is that more rapid tightening, were it necessary, could risk disrupting the recovery that is now attaining both elements of the Federal Reserve's dual mandate – full employment and an inflation target consistent with price stability."
