Monetary policy will have to normalize at a faster rate going forward, with rate hikes "still gradual but somewhat more regular," Federal Reserve Bank of Boston President & CEO Eric S. Rosengren said Monday.
"My own view is that the [Summary of Economic Projections] median forecast seems reasonable if we continue to see real GDP growing faster than the so-called 'potential' rate," Rosengren said, according to prepared text of a speech he was delivering in Hartford, Conn., released by the Fed. "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."
He noted, "I expect that appropriate monetary policy will need to normalize more quickly than over the past year, but certainly not as rapidly as in the last tightening cycle, which began in 2004."
With the unemployment rate near its sustainable long-term level, and inflation nearing the Fed's 2% target, Rosengren warned that without rate hikes, unemployment could sink too low and inflation too high.
"So 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," he said.
He pointed to the increase in long-term rates since November, pointing to the 50-plus basis point rise in the 10-year U.S. Treasury rate, which he suggested could be a sign markets a "potentially more stimulative fiscal policy, greater confidence that inflation will increase toward targets, and more optimism about global prospects."
