The Federal Reserve is in danger of generating too-high inflation or inflating a financial bubble if it doesn’t begin raising interest rates soon, a Federal Reserve official warned Friday in explaining why he voted against this week’s decision to hold the central bank’s rate target near zero.
“Accomplishing a soft landing is difficult, and very rarely achieved,” said Eric Rosengren, the head of the Federal Reserve Bank of Boston.
Rosengren, one of three officials to dissent from the no-rate-hike decision Wednesday, cited recent job gains and rising inflation as reasons for the Fed to continue raising rates, and that if it does not it will risk “overshooting” and endangering the recovery. The Fed last raised interest rates in December, the only such rate hike since it lowered its target all the way to zero during the financial crisis.
The comments that Rosengren posted on the Boston Fed’s website Friday are particularly noteworthy because he is often thought to be one of the bigger “doves” within the Fed, meaning he is usually more concerned about lowering unemployment than he is about the Fed accidentally stoking high inflation.
In his comments, Rosengren expressed the fear that the Fed, on its current course of action, will push unemployment too low, down from 4.9 percent to below 4.5 percent in the next few years.
On Wednesday, Fed chairwoman Janet Yellen said that she hoped that the falling unemployment rate would continue to bring people off the sidelines and into jobs.
Rosengren, however, said that the Fed pushing unemployment below 4.5 percent would bring people into the labor force “unfortunately only temporarily.”
