Fed's Rosengren Says Bank Can Be Patient In Lifting Rules

        By Ben Leubsdorf
        BOSTON - The Federal Reserve can be patient in raising interest rates because U.S. inflation and wage growth both remain low, Federal Reserve Bank of Boston President Eric Rosengren said Saturday.
        "A patient approach to policy is prudent until we can more confidently expect that inflation will return to the Fed's 2% target over the next several years," Mr. Rosengren said in remarks prepared for delivery in Boston during the annual meeting of the American Economic Association. "Such patience also provides support to labor markets, boosting the prospects of the many Americans who were adversely impacted by the financial crisis, severe recession and slow recovery."
        The Fed is expected to begin raising its target for the federal funds rate, which has been pinned near zero since December 2008, this year as the economy heals from the 2007-2009 financial crisis and recession. The precise timing remains up in the air, though Fed Chairwoman Janet Yellen said in December that the first rate increase was "unlikely" to come at the Fed's next two meetings, which are in January and March.
        Mr. Rosengren said the timing of the first rate increase will depend on incoming economic data. But, he noted, "while market participants worry about whether liftoff will occur in April, June, or August, in fact most models imply that the macroeconomic implications of such differences are quite small."
        His remarks echoed comments he made in November that the Fed should remain "patient" about raising rates until there is stronger evidence of firming prices.
        U.S. inflation has undershot the Fed's 2% annual goal for nearly three years, a potential sign of underlying weakness in the economy. A recent further slowdown has been blamed on plunging oil prices.
        When the Fed does begin to raise rates, Mr. Rosengren said Saturday, they may not rise as quickly or as high as before the recession. He said low global inflation may "allow for a more gradual normalization process than typically occurs," and "with so little wage and price pressure, and relatively slow productivity growth, it is possible that rates may not normalize at the same level they were prior to the financial crisis."
        A potential complication, he said, is the prospect for an "unusual divergence" among advanced economies as some tighten credit and others continue ultra-easy-money policies. The Fed and the Bank of England have been laying the groundwork for eventual rate hikes, while the Bank of Japan recently ramped up its stimulus efforts and European Central Bank officials have signaled they may begin large-scale asset purchases in 2015.
        Mr. Rosengren doesn't have a vote this year on the Fed's rate-setting panel, the Federal Open Market Committee, but he participates in its discussions. He has been a supporter of aggressive action to assist the economy, dissenting in late 2013 when the Fed began to wind down a bond-buying program intended to stimulate growth.
        (END) Dow Jones Newswires

        January 03, 2015 14:35 ET (19:35 GMT)

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