Tags: Rosengren | Federal Reserve | Rates | Inflation

Rosengren Urges Fed Patience on Raising Rates Amid Low Inflation

Saturday, 03 January 2015 06:14 PM

Low inflation and the lack of clear signals that prices will head higher are compelling reasons for the Federal Reserve to exercise patience on raising interest rates, a U.S. central banker said.

Federal Reserve Bank of Boston President Eric Rosengren, in the text of a speech at the annual meeting of the American Economic Association in Boston, also said low inflation warrants allowing the labor market to tighten further.

“I believe the continued very low core inflation and wage growth numbers provide ample justification for patience,” said Rosengren, who next votes on the Federal Open Market Committee in 2016. “A patient approach to policy is prudent until we can more confidently expect that inflation will return to the Fed’s 2 percent target over the next several years.”

The policy-setting FOMC last month dropped its pledge to hold rates low for a “considerable time” and replaced it with an assurance that it would be “patient” before lifting borrowing costs for the first time since 2006.

Fed Chair Janet Yellen told reporters this means no move for at least the next two meetings, focusing investor attention on the April 28-29 FOMC as the first gathering at which it might raise rates held near zero since December 2008.

Rosengren said the uncertainty of economic forecasts meant it isn’t possible to be precise on the timing of rate liftoff, and waiting a few more months wouldn’t make much difference.

“While market participants worry about whether liftoff will occur in April, June, or August, in fact most models imply that the macroeconomic implications of such differences are quite small,” he said.

Oil Prices

He also said headline inflation could be “particularly depressed” in the short run by oil prices, which have halved to less than $53 per barrel since mid-2014.

The Fed’s preferred gauge of price pressures facing U.S. households rose by 1.2 percent in November compared with a year earlier, while a core measure that strips out volatile food and energy costs rose by 1.4 percent.

“Recent data do not yet indicate a clear trend back to 2 percent,” he said. “Such low inflation, and the risk that inflation expectations may decline, are reasons to allow labor markets to tighten further, which should spur wage growth.”

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Finance
Low inflation and the lack of clear signals that prices will head higher are compelling reasons for the Federal Reserve to exercise patience on raising interest rates, a U.S. central banker said.
Rosengren, Federal Reserve, Rates, Inflation
372
2015-14-03
Saturday, 03 January 2015 06:14 PM
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