The gradual rate hikes will continue even as inflation remains below the Federal Reserve’s 2% target, Federal Reserve Bank of Boston President Eric Rosengren said Friday.

“Recent forecast errors of inflation and unemployment have not been particularly large, and do not pose much challenge to continuing on the current path of gradual increases in the federal funds rate,” Rosengren told a conference in San Diego, according to prepared text released by the Fed. “Perhaps the bigger risk for short-run policy is the fact that the unemployment rate continues to fall further below sustainable levels, and will likely continue to do so going forward, risking the sustainability of the recovery.”

Rosengren said the Fed has an opportunity, as a result of prolonged low real interest rates, to adapt and “consider alternative monetary policy frameworks” to inflation targeting to avoid hitting zero lower bound, requiring nontraditional methods of adjusting monetary policy.

Federal Reserve Bank of Boston President Eric Rosengren.
Federal Reserve Bank of Boston President Eric Rosengren. Bloomberg News

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Gary Siegel

Gary Siegel

Gary Siegel has been at The Bond Buyer since 1989, currently covering economic indicators and the Federal Reserve system.