President Eric Rosengren suggested Monday economic weakness may not be a transitory event.
"[D]ata were not just weak during the worst of winter; they were also weak before the storms and have been weaker than expected ever since. So economic growth for the first half of this year looks to be well below what was expected, even correcting for some temporary disruptions," Rosengren told a group in Hartford, Conn., according to prepared text released by the Fed.
If weather were the cause of the weakness, Rosengren said, there should have been a "snapback" when conditions improved. "But there has not been much evidence of such a snapback in the numbers."
April retail sale numbers disappointed, Rosengren said, suggesting "we need to see more data before dismissing the slower first-quarter consumption as only a result of temporary factors."
The Federal Open Market Committee stated that before raising short-term rates it wanted to see further labor market improvement and be confident inflation was moving back toward its 2% target.
But Rosengren said to meet those criteria, GDP would have to grow at a rate above its "potential." "Given the data that we have seen so far, economic growth above potential seems unlikely for the first half of this year," he said.
While forecasters project the second half of the year to be stronger, Rosengren noted, "so far this improvement is only in the forecast, and not in the data. The data have disappointed before, and an appropriately data-dependent monetary policy requires confirmation in the numbers, not just in forecasts of better times."
Indeed, he pointed to the summary of economic projections, which "have tended to be too optimistic about growth in 2015, and that their assessment of the likelihood of strong growth over the year has declined significantly as the year has progressed."
GDP growth averaged 2.3% in the past two years, and growth in the first half of 2015, he said, is likely to "average much less than 2%. In my view, such a pace of GDP growth does not meet some of the economic preconditions we look for when we begin a tightening cycle, even if one takes into account that potential GDP growth is now lower than in previous cycles."
