It might be appropriate for the Federal Reserve to lift interest rates this year if growth meets expectations, said Boston Fed President Eric Rosengren, though policy makers should wait to see how the Greek crisis unfolds.
“Data dependence at this point means, in my view, that we wait for data that gives us greater confidence in our forecast, especially our forecast for inflation,” Rosengren said in a speech in Victor, Idaho, Friday. “It also means we wait to get a better handle on how the crisis in Greece gets resolved, so that we can better gauge its potential to impact financial markets and the domestic economy.”
Fed officials are looking for inflation to pick up toward their 2 percent target and for signs that the labor market is fully healed before raising rates for the first time since 2006. Their outlook could be swayed if turmoil from Europe affects the U.S. economy.
“It is not obvious that these events will significantly alter the expected path of the U.S. economy,” Rosengren, who will vote on monetary policy next year, said in prepared remarks. “But they have surely added to the uncertainty around that forecast.”
Rosengren, 58, also said he’s waiting to see an acceleration in inflation. Consumer prices as measured by the Fed’s preferred gauge have lingered below its goal for more than three years.
“The evolution of the domestic economy remains somewhat concerning,” he said. “Perhaps most troubling is the fact that inflation persists in remaining well below the Federal Reserve’s 2 percent target.”
Price increases may be subdued because slack remains in the labor market, he said, adding that he’s lowered his forecast for the so-called natural rate of unemployment to 5 percent and may cut it further if inflation continues to undershoot. The natural rate of unemployment is the level that exists in a healthy labor market because of normal job-changing and mismatch.
Rosengren’s remarks come after the Federal Open Market Committee released minutes from its June meeting this week, in which policy makers saw the economy moving toward conditions that would support an interest-rate increase and also voiced concern about risks from Greece.
Chair Janet Yellen will speak about the economy in Cleveland, Ohio later on Friday.