Investing.com - The Federal Reserve should refrain from raising benchmark interest rates until the economy is close to reporting full employment, said Federal Reserve Bank of Boston President Eric S. Rosengren.
The Fed's benchmark interest rate, the fed funds rate, is currently set at 0.25%.
Keep it there, Rosengren said at a Central Bank of Guatemala event, until the labor market is back to normal.
“I personally do not expect that it will be appropriate to raise short-term rates until the U.S. economy is within one year of both achieving full employment and returning to within a narrow band around 2 percent inflation,” Rosengren said in prepared remarks of his speech.
“However, both the transition to higher rates and the operating procedure for doing so could entail financial stability effects that should be thoughtfully considered—and I am certain will be.”
The Fed is currently purchasing $45 billion in Treasury and mortgage debt a month to prop up the economy, a monetary policy tool that Rosengren defended despite the inflationary side effects some fear will arise as a result of such accommodative policy.
“My own view is that the ‘new’ monetary tools were essential,” Rosengren said, adding that large-scale asset purchases, forward guidance, and the Fed’s program to purchase longer-term securities (maturity extension), contributed to lower marketplace interest rates, “a faster improvement in labor markets than forecasters were expecting,” and rebounding asset prices.
Fed officials have said they some time will pass between the time the bond-buying program closes and interest rates rise.