One of the Federal Reserve’s top proponents of monetary stimulus signaled that he is open to raising interest rates Monday, in a speech that is likely to solidify the perception that the central bank will begin tightening monetary policy at its next meeting in December.
Speaking in Portsmouth, R.I., Federal Reserve Bank of Boston President Eric Rosengren suggested that the economy is on track to meet the main condition the Fed has set for raising rates, namely that it is strong enough that inflation will rise to the Fed’s 2 percent target.
“As long as the economy is growing somewhat above potential, I am reasonably confident we will return to our 2 percent inflation target and to my estimate of full employment,” Rosengren said in prepared text.
“Reasonably confident” in rising inflation is the standard the Fed’s monetary policy committee has set in its recent statements for raising interest rates.
Rosengren added that “the data received recently have been positive, reflecting real improvement for the economy.” He also suggested that after the Fed’s initial rate hike, subsequent increases in the interest rate target should be slow.
Rosengren is generally viewed as one of the Fed officials least likely to worry about inflation rising out of control and most likely to favor monetary easing to address unemployment. He is not currently a voting member of the Fed’s monetary policy committee, but will take on a voting role in January.
Banks and investors have become more convinced that the Fed will raise rates in December following a strong jobs report for October. The most recent odds implied by bond market prices suggest a nearly 70 percent chance for a rate hike at the meeting that ends on Dec. 16, up from closer to 30 percent just days ago.
The Fed’s decision is highly anticipated because it has targeted short-term interest rates near zero since late 2008. A rate hike would be the first step toward reversing its unprecedented efforts to stimulate the economy.
