Statement from the Boston Fed head Eric Rosengren
Arguing for a modest and gradual tightening now
This is from a statement on the Boston Fed's website explaining his decision to dissent on Wednesday.
"Unemployment this low may well have the desirable effect of bringing more workers into the labor force - but, unfortunately, only temporarily. Historical experience suggests it also risks overheating the economy, the effects of which include heightened pressure on inflation and potentially increasing financial-market imbalances. Gently backing the economy away from such imbalances has proven to be very difficult in the past. In fact, such overshoots have in the past always resulted in a recession, rather than a return to the full employment level. Accomplishing a soft landing is difficult, and very rarely achieved. This is true whether reducing the unemployment rate, such as from its recent high of 10 percent, or raising it back to its full employment value from below.
My goal is to achieve a long and durable recovery - a sustainable expansion. For the reasons articulated above, I believe a significant overshoot of the full employment level could shorten, rather than lengthen, the duration of this recovery.
As a result I am arguing for modest, gradual tightening now, out of concern that not doing so today will put the recovery's duration and sustainability at greater risk, by generating the sorts of significant imbalances that historically have led to a recession."
He's a dove at heart so this is his dovish explanation for a hike.
This also reinforces my view that we are unlikely to see sustained USD strength if the Fed hikes as they will be ride back on their hands for many more months unless the economy starts really cooking.
