Rosengren, Yellen: Federal Reserve may increase rates in next two months

While speculation has been rampant on when the Fed’s easy money policies start to dry up, one Federal Reserve official — Boston Fed President Eric Rosengren — told Reuters tightening could come at any time, including the next meeting in mid September.

“If we do continue to get improvement in labor markets, if we do become reasonably confident that we’re moving back to 2-percent inflation, it may be appropriate as early as September”, the report indicates.  Rosengren is known as a “dove”, meaning he favors easier money (more favorable credit terms) over tighter policy (less favorable credit terms).

Rosengren only indicated he’d back off that analysis if employment trends worsened (either in jobs or in wage data), or inflationary readings started easing. While the US has generally showed some improvement recently, with the core unemployment rate down to 5.3 percent, international weakness has led to a great deal of speculation as to when the Fed would manage their exit from the easy-money policies it has kept in place since the aftermath of the 2008 meltdown.

In an interview with The Wall Street Journal in April of this year, Rosengren was more cautious due to impacts in Europe and China, which have turned worse in the past week.  But he told Reuters yesterday that if “international shocks turn out to not to be negative at all that would be very good news”.

Rosengren does not have a vote on policy under current Fed design.  He is predicting Gross Domestic Product (GDP) to reach 2.75 percent in the back half of the year.  

Federal Reserve chair Janet Yellen, in a speech in Cleveland on Friday, indicated  “I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy”, but also added “I currently anticipate that the appropriate pace of normalization will be gradual, and that monetary policy will need to be highly supportive of economic activity for quite some time”.

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