Since the Federal Open Market Committee stated it wanted to see further labor market improvement and have confidence inflation will return to 2% over the medium term, now is not the time to raise rates, Federal Reserve Bank of Boston President & Chief Executive Officer Eric S. Rosengren said Thursday.
With the March jobs data disappointing and core PCE inflation at 1.4%, some have said these are temporary set-backs.
"Still, it remains difficult to separate the temporary and easy-to-explain from the lasting and more concerning - so in my view, incoming data would need to improve to fully satisfy the Committee's two conditions for starting to raise rates" Rosengren said in a London speech, according to prepared text released by the Fed.
Further, he suggested "simple rules" alone cannot dictate monetary policy. "Simple monetary rules cannot capture the full complexity involved in determining appropriate monetary policy, especially during periods when economic relationships may be changing."
"Rigidly" employing those rules, Rosengren said, "would, in my view, be misguided. Many of these simple rules would have dictated a tighter policy for some time, even as employment has fallen short of full employment and inflation has run below our 2 percent goal, more than seven years since the start of the recession. For me, there is wisdom in utilizing a more flexible and comprehensive set of variables and models when considering appropriate monetary policy."
Rosengren said the interesting parts of the Summary of Economic Projections were the decreased estimates in the unemployment rate and the reduction of the projected long-run federal funds rate.
While simple rules expect these estimates to remain stable, he said, "in practice, these key variables, held constant by simple rules of thumb, can change - and, according to FOMC participants' SEP submissions, have changed significantly over the past three years."
The FOMC doesn't define "full employment," Rosengren noted, "And simple rules that assume the full employment level of unemployment is constant could provide misleading guideposts for setting monetary policy."
