March 9, 2018 / 5:40 PM / 10 days ago

Fed's Rosengren hints in four-hike camp after U.S. fiscal boost

March 9 (Reuters) - The Federal Reserve may well raise U.S. interest rates four times this year given the boost from tax cuts and spending, and overseas strength that will further stimulate the U.S. economy, a top U.S. central banker said on Friday.

Boston Fed President Eric Rosengren, a veteran policymaker who foreshadowed the shift last year to a more hawkish stance, urged “regular but gradual” interest-rate rises so as to avoid a boom-and-bust economy as falling unemployment puts more upward pressure on inflation and wages.

The comments reinforced growing confidence within the central bank that its decade-long drive to stimulate the economy is drawing to a close. Rosengren, who warned that a “trade war” could yet derail the tightening plan, aligned himself with those eyeing four hikes this year, more than the three predicted in median Fed forecasts from December.

“To keep the economy on a sustainable path, I expect that it will be appropriate to remove monetary policy accommodation at a regular but gradual pace and perhaps a bit faster than the three ... increases envisioned” in December, for 2018, he said.

He said he was already leaning toward four hikes in December, but since then “quite good” economic data reinforced that view.

Economists and investors are split as to whether the median Fed forecast for the number of rate hikes will rise to four at the next policy meeting on March 20-21. The central bank, which kept rates near zero for seven years in the wake of the last recession, is deciding how to respond after Congress since December adopted $1.5-trillion in tax cuts and a $300-billion rise in spending.

“Providing too much stimulus from either monetary or fiscal policy at this stage of the economic cycle could threaten to create a so-called ‘boom and bust’ economy, which policymakers certainly want to avoid,” Rosengren said in remarks to the Springfield Regional Chamber. “Unexpected events such as a trade war or a substantial change in the geopolitical situation” could cause the Fed to slow or halt rate hikes, he added. (Reporting by Jonathan Spicer Editing by Chizu Nomiyama)

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