Feb. 17, 2016
USD/MAJORS - Boston Fed President Eric Rosengren earlier said that the Federal Reserve should be "unhurried" as it considers when to raise interest rates again given problems overseas and financial market volatility that will likely dampen already low U.S. inflation.
Rosengren went a step further than cautious comments he made last month, and stressed that the U.S. central bank would need to ratchet down economic forecasts it made in December because oil prices have continued to fall amid turbulent markets and a global economic slowdown.
The Fed raised rates in December for the first time in nearly a decade. Rosengren, a voter on policy this year and an influential dove at the Fed, said that a more gradual approach is an appropriate response to headwinds from abroad that slow exports and financial volatility that raises the cost of funds to many firms.
The comments reinforce the view among investors that U.S. central bankers have been spooked by a world selloff in stocks and oil based on fears of a broader slowdown, despite a relatively solid economic performance in the United States.
The Fed published forecasts in mid-December suggesting four more rate hikes would come this year. But Rosengren said those would likely be adjusted at the U.S. central bank's mid-March policy meeting, because weak energy prices and a strong dollar would depress U.S. inflation into the spring. Persistently low prices may even indicate that Americans' inflation expectations are "becoming less well anchored," a red flag for any central bank.
Even while core U.S. inflation is 1.4 percent, below the 2 percent target, a relatively new measure of expectations tumbled to its lowest ever levels last month. Rosengren further said that while it is likely that much of the fourth-quarter weakness is due to temporary factors ... if more pronounced global weakness were to materialize and be transmitted to the U.S., he personally believes there would be little need to raise rates until the economy was growing closer to its potential rate.