The Fed: Fed’s Rosengren still expects an interest rake hike, despite weak jobs report


Bloomberg News

Boston Fed President Eric Rosengren

Looking beyond the dismal May job report, Boston Fed President Eric Rosengren on Monday said he expected sufficient economic growth to justify higher interest rates in coming months.

Rosengren did not specify when the Fed might move but said “it is my expectation that economic conditions will continue to gradually improve, which in turn would justify further actions to normalize policy, continuing a gradual return to a more normal rate environment.”

Analysts think it is highly unlikely that the U.S. central bank will raise interest rates at its meeting next week, and many doubt the Fed would be able to move at the following meeting six weeks later at the end of July.

Read: June’s out for a Fed rate hike

In his speech Monday to an economic group meeting in Finland, Rosengren described U.S. economic conditions as “choppy.”

In the first quarter, the labor market was strong and the economy was weak, but this pattern reversed in the second quarter, he said.

“However, I still expect sufficient economic growth to justify a gradual removal of accommodation,” he said.

Rosengren said the 38,000 jobs created in May, the lowest amount in almost six years, “was disappointing.” It will be important to see whether the weakness was an anomaly or reflects broader slowing, he added.

Still, the Boston Fed president noted the unemployment rate fell to 4.7% in May, the lowest level since December 2007.

He said this unemployment rate represented full employment, meaning if the rate falls any further, inflation would pick up. And there has already been some evidence that inflation is moving towards the central bank’s 2% target, he said.

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Over the past six months, Rosengren has been a forceful advocate for higher interest rates in the U.S., citing a concern that low rates may be fostering asset bubbles, especially in the commercial real estate market. He has said he thought the financial market was underestimating the likely path of monetary policy. He is a voting member of the Fed policy committee this year.

Fed Chairwoman Janet Yellen will speak later on Monday, the last speech from the U.S. central banker prior to the start of the media blackout period ahead of the June 14-15 meeting.

Like Rosengren, Yellen may use her speech to calm worries about the economy after the weak job growth in May. She is scheduled to speak at 12:30 p.m. Eastern Time in Philadelphia.

See: Yellen speech may be attempt at damage control

The Fed said in March it plans to hike rates twice this year. It will update its forecast following the June 14-15 meeting.

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