Fed’s Rosengren Says Global Growth Pushing for More Gradual Course of Rate Hikes

Global and U.S. economic growth may be slipping and force the Federal Reserve into a more gradual course of rate hikes than officials currently expect, Boston Fed President Eric Rosengren said on Wednesday.

Calling the Fed’s first-in-a-decade rate hike in December “uneventful” so far, Rosengren said much of the news since then has not been good.

The rout in China’s stock market, weak oil prices and other factors are “furthering the concern that global growth has slowed significantly,” Rosengren told the Greater Boston Chamber of Commerce. In addition, end-of-year gross domestic product estimates for the United States are “raising the possibility that domestic growth could be slowing.”

Combined with continued weak readings on inflation, this means the Fed may have to slow the expected pace of rate hikes, which officials in December projected at four quarter-point increases over the coming year.

At the same time Rosengren said U.S. central bankers face an additional challenge because the United States is at a different stage in its growth cycle compared to the euro zone and Japan, where central banks are still easing policy.

“While monetary policy should not overreact to short-term temporary fluctuations in financial markets, policy makers should take seriously the potential downside risk to their economic forecasts and manage those risks as we think about the appropriate path,” Rosengren said. “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 to target.”

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza