Federal Reserve Bank of Boston President Eric Rosengren said estimates for U.S. economic growth are falling, putting the central bank’s projected path for rate increases at risk.
While officials’ median projection last month provides a “reasonable estimate” for the likely path of the policy rate in 2016, that forecast faces “downside risks,” Rosengren said Wednesday in the text of a speech to the Greater Boston Chamber of Commerce. “I will remain highly attentive to foreign economic conditions, any weakening of the domestic economic situation, and the path of U.S. inflation.”
The policy-making Federal Open Market Committee voted Dec. 16 to raise the central bank’s benchmark interest rate by a quarter percentage point, a move Rosengren supported, based largely on progress made returning millions of Americans to work after the worst recession since the Great Depression. The median projection of FOMC members submitted at the meeting called for four additional quarter-point increases in 2016.
Rosengren is considered among FOMC members most supportive of loose monetary policies.
“Policy makers should take seriously the potential downside risks to their economic forecasts and manage those risks as we think about the appropriate path for monetary policy,” said Rosengren, a voting member of the FOMC this year.
“These downside risks reflect continued headwinds from weakness within countries that represent many of our major trading partners, and only limited data to support the projected path of inflation,” he said.
FOMC members forecast inflation will rise to 1.6 percent in 2016 and hit the Fed’s 2 percent target in 2018. The Fed’s preferred gauge of price pressures rose 0.4 percent in the 12 months through November and hasn’t reached 2 percent in more than three years.
“Further tightening will require data continuing to be strong enough that growth will be at or above potential, so that Federal Reserve policy makers can be confident that inflation will reach our 2 percent target,” Rosengren said.
The median forecast from Fed officials puts the long-run growth rate of the U.S. economy at 2 percent.