Economist's Insights

Rosengren Wants Rates Hikes and Lower Reinvestments Concurrently

Apr 19, 2017

Boston Fed President Rosengren doesn’t consider his call for three more rate hikes this year as an impediment for beginning balance sheet normalization “relatively soon”. While some Fed Officials have supported pausing rate hikes for a short period once phasing out of reinvestments begin, Rosengren sees a way for hikes to continue at the same time reinvestments are slowed. He said, “By initially retiring only a small percentage of maturing securities, and then very gradually shrinking the volume of the securities being reinvested, the tightening of short-term interest rates should not need to be much different than it would be in the absence of shrinking the balance sheet. …Starting to shrink the balance sheet earlier … implies very little reduction in the degree of monetary stimulus coming from the balance sheet.”