Breaking News

Fed's Rosengren faults inflation target, warns of harm

EconomyJan 12, 2018 07:07PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. File Photo: The Federal Reserve Bank of Boston's President and CEO Eric S. Rosengren speaks in New York

By Ann Saphir

(Reuters) - The recent drop in U.S. unemployment could spark a surge in inflation that, given the Federal Reserve's current policy framework, could trigger interest-rate hikes that bring on a recession, Boston Federal Reserve President Eric Rosengren warned on Friday.

"I'm disagreeing with that framework," Rosengren said at the Global Interdependence Center in San Diego, referring to the Fed's "balanced" approach to achieving a 2-percent inflation target and full employment. The Fed adopted this framework six years ago and has reaffirmed it each year since.

Now, as Fed Governor Jerome Powell prepares to take the reins as Fed chief from Janet Yellen when her term ends early next month, a growing number of Fed policymakers want to rethink that framework.

Rosengren's comments Friday put the sharpest point to date on the debate, suggesting that a strict 2-percent inflation target could force the Fed to slam the brakes on the economy with aggressive rate hikes if the unemployment rate, now at 4.1 percent, continues to sink. It is already below the level that many economists think can be sustained without putting upward pressure on inflation.

While inflation running stubbornly below 2 percent has so far allowed the Fed to lift rates only gradually, that may change, Rosengren warned.

"My concern is if we get too far away from where we want to be on a sustainable unemployment rate, and we use this current framework, then we will get to a situation where we have to raise rates fast enough that we will actually find it very difficult to get back to full employment without causing a recession," Rosengren said.

Rosengren suggested replacing the 2-percent inflation target with a target range for inflation of between 1.5 percent and 3 percent, in line with actual experience over the last 20 years.

Under current conditions of low productivity and labor force growth, he said, the Fed would target inflation at the upper end of that range, and would be more patient with rate hikes.

Rosengren's solution, proposed publicly for the first time in detail in his Friday speech, differs from approaches preferred by some of his colleagues, including targeting an average rate of 2-percent inflation, or lifting the inflation target to 4 percent.

But common to all of the approaches is the view that the central bank needs better leverage against future recessions than the current approach affords.

"We are approaching a time when a comprehensive reconsideration of the monetary policy framework is likely warranted," Rosengren said.

Fed's Rosengren faults inflation target, warns of harm

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Jonathan Ben
Wanderlust Jan 12, 2018 8:13PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Not wrong but its questionable what real inflation numbers are.  1) globalization artificially drove down costs temporarily which was maintained by wage stagnation.  2) The boomers are transitioning into full retirement and are cutting down spending which lowers the price on goods due to decreased demand (remember they saved less then preceding generations so now they have less to spend in golden years).  3) Illegal workers are taking artificially low wages to some extent meanwhile other workers have left the employment group this all depresses prices.  4) Lots of the QE was sucked directly into companies, this is not bad but this delays people reusing the money on spending after they finally cash out.  True inflation is probably higher then just the CPI suggests.
0 0
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email