NEW YORK, Sept 1 (Reuters) - The Federal Reserve will probably only gradually raise interest rates, irrespective of whether it decides to take the first step a few months earlier or later, a top U.S. central banker said on Tuesday.
The dovish president of the Boston Fed, Eric Rosengren, said a more modest tightening cycle than in the past is appropriate because of low inflation and subdued U.S. economic growth.
Dodging the question of whether he would prefer to start hiking rates at a Sept. 16-17 policy meeting, Rosengren, who does not have a vote on the Fed’s policy committee until next year, said recent evidence of a weaker global economy could hit home, and it calls into question the assumption that the U.S. labor market will continue to improve.
“There are very good reasons to expect a much more gradual normalization process than occurred in the previous two tightening cycles,” he said, adding, “this more modest tightening path is both necessary and appropriate.”
Rosengren downplayed the timing of so-called liftoff, saying it makes little economic difference whether it is moved “forward or backward by a couple of months.”
A recent stock market selloff, which returned on Tuesday, was sparked by fears of slower Chinese growth, which could keep U.S. inflation below target. The turmoil has given some Fed officials pause, and prompted investors to cut their predictions of a September U.S. rate hike to about 32 percent.
Addressing the Forecasters Club of New York, Rosengren analyzed the previous two monetary tightening cycles that began in 1994 and 2004 and concluded that, this time around, the Fed’s key policy rate may end up lower.
Recent evidence of “slowing of foreign economies, ... volatile stock prices and falling commodity prices” might influence U.S. economic growth to the extent that the U.S. jobless rate, at 5.3 percent now, may not continue to fall and boost wages as expected, he said. (Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)