Fed's Rosengren: economy growing too slowly to justify rate hike

Mon Jun 1, 2015 10:18am EDT
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By Svea Herbst-Bayliss

HARTFORD, Conn. (Reuters) - With little evidence the U.S. economy is rebounding after a very weak first quarter, the Federal Reserve is in no position to start raising interest rates for the first time since 2006, a top Fed official said on Monday.

"I would like to normalize (rates) as soon as possible ... but the conditions haven't been right,” Boston Fed President Eric Rosengren said, adding that there are side effects to keeping rates low for a long time. "In some sense when we start raising rates that's good news."

The Fed has said it will raise rates only once it sees further improvement in the labor market, and is reasonably confident that inflation is headed back to the Fed's 2 percent target.

But with growth in the first half of the year likely to run below the economy's potential of about 2 percent, "I do not expect to see timely improvements in the unemployment rate and sufficient progress towards the 2 percent inflation target," Rosengren said. "This, in my view, makes a compelling argument for continued patience in monetary policy."

Global risks also loom.

"I’m worried about what's happening in Europe,” Rosengren said after his speech, adding, “It would be nice if they came to a conclusion over what's happening in Greece.”

Athens and its euro zone and International Monetary Fund creditors are in talks over Greece's debt and aid money, and without a deal, Greece could soon default or go bankrupt.

“If there was a disorderly outcome in Europe it would have an impact on New England,” Rosengren said.   Continued...

The United States Federal Reserve Board building is shown behind security barriers in Washington October 28, 2014. REUTERS/Gary Cameron