Investing.com – Federal Reserve (Fed) Bank of Boston president said on Friday that the currently low levels of unemployment posed a risk to the economy and explained that as the reason why he preferred to hike rates at the last policy meeting.
Rosengren was accompanied by fellow Kansas City Fed chief Esther George and Cleveland Fed president Loretta Mester in dissenting on last Wednesday’s decision to leave monetary policy unchanged with the statement declaring their preference for a 25 basis-point hike to 0.50%-0.75%.
In a statement on his decision, Rosengren explained that he was concerned about the sustainability of the economic expansion and was worried that unemployment could actually fall below his preferred rate.
“Unemployment this low may well have the desirable effect of bringing more workers into the labor force – but, unfortunately, only temporarily,” he said.
Rosengren further noted that such levels of joblessness ran the risk of overheating the economy, heightening pressure on inflation and increasing financial market imbalances.
He considered that undoing those imbalances would be a very difficult task.
“In fact, such overshoots have in the past always resulted in a recession, rather than a return to the full employment level,” he warned.
“As a result I am arguing for modest, gradual tightening now, out of concern that not doing so today will put the recovery’s duration and sustainability at greater risk, by generating the sorts of significant imbalances that historically have led to a recession,” Rosengren concluded.