Economist's Insights

Rosengren Sees Risk to Overly Hot Labor Market

Jun 27, 2018

Boston Fed President Rosengren (2019 voter) said in his prepared remarks that he believes “the policy path that will increase the probability of a longer recession-free period is the path where the economy does not run above capacity and thus, fall far below the sustainable unemployment rate.” Afterwards he said one of the factors that has allowed the Fed to tighten at a gradual pace relative to past cycles has been that “we haven’t seen much of a trade-off between inflation and unemployment, …We haven’t seen wages go up very rapidly yet.” He noted that “If you really think expectations are really well-anchored, maybe we can take a little more risk,” but cautioned that “We do need to think about, is inflation picking up faster than we think.” Thinking about the future, Rosengren said the Fed “focusing more on an inflation range than a specific number,” would be one approach to monetary policy that would potentially allow the Fed to “avoid hitting zero with short-term rates” again.