Markets are mistaking the Federal Reserve’s plans for interest rates, a member of the central bank warned Thursday, saying that the Fed should proceed with tightening monetary policy if the economy holds up.
Eric Rosengren, the president of the Federal Reserve Bank of Boston, said in a speech Thursday that investors are “too pessimistic” about the prospects for the economy and interest rate hikes.
Citing strong job growth and the economy bringing workers back into the job force, Rosengren laid out the case that the Fed will have to raise rates. While the central bank has been communicating that it expects enough growth to justify further rate hikes, markets have been skeptical.
The Fed has to act now to avoid keeping rates too low, Rosengren said, or risk encouraging risky behavior by investors. He pointed in particular to commercial real estate as a market in danger of overheating.
Rosengren’s remarks are notable partly because he is among the most “dovish” members of the central bank, that is, usually more concerned about high unemployment and less concerned about the risks of too-high inflation.
Rosengren will be among the regional Fed bank presidents voting on the Fed’s monetary policy decision at the committee’s next meeting in June.
