The Federal Reserve Bank of Boston's President and CEO Eric S. Rosengren speaks during the ''Hyman P. Minsky Conference on the State of the U.S. and World Economies'', in New York, April 17, 2013.
Given the "significant" slack in U.S. labor markets, the Federal Reserve should be patient about reducing monetary policy stimulus and refrain from telling markets exactly when it may raise rates, a top Fed official said on Friday."As we approach levels of unemployment that many consider 'full employment,' the Fed should no longer issue guidance on the approximate timing of any monetary policy changes," Boston Federal Reserve Bank President Eric Rosengren said in remarks prepared for delivery to the New Hampshire and Vermont Bankers Associations. "I do not intend this to reduce transparency in monetary policymaking. Rather, I simply want to acknowledge that any reference to calendar dates has the potential to be inaccurate."
The Fed has kept short-term interest rates near zero since December 2008 and bought trillions of dollars of bonds to push down longer-term borrowing costs as well.
With unemployment falling - it registered 6.1 percent in August, data earlier Friday showed - the Fed has been paring its monthly bond-purchases gradually. Investors are increasingly focused on when the Fed will start raising rates.
Though the Fed no longer issues any precise estimate of how long it will keep rates low, it does say it will probably not begin raising rates until a "considerable time" after the October end of its bond-buying program.
Individual Fed officials have offered even more precise views of their preferred timing for rate hikes to start, with St. Louis Fed President James Bullard pegging late first-quarter 2015, and several other Fed officials suggesting mid-2015.
And analysts regularly provide their projections, which currently also fix a likely rate first rate hike somewhere in the middle of next year.
Reiterating an idea he first floated in April, Rosengren said he would want to wait to raise rates until the U.S. economy is within a year of reaching full employment and the Fed's goal of 2-percent inflation.
While a mid-2015 rate hike is "roughly consistent" with such a policy, he said, uncertainty around unemployment forecasts could mean the U.S. economy reaches full employment several quarters earlier, or several quarters later, than current projections suggest.
That is because the extent of U.S. labor market slack is probably not fully captured by the steeper-than-anticipated decline in unemployment, he said.
As labor markets tighten, discouraged workers will likely be drawn back to the workforce, keeping the unemployment rate from falling as rapidly as it has been, he said.
Large numbers of part-timers who would prefer to be full-time workers also suggests significant labor market slack, he said, as does subdued inflation running below the Fed's 2-percent target, and lack of upward pressure in wages.
"It seems to me appropriate for monetary policy to continue to be patient – in the interest of ensuring that the economy reaches full employment and the 2 percent inflation target as quickly as possible," he said.
