Fed's Rosengren Still Doesn't See Need to Lower Rates

Federal Reserve Bank of Boston President Eric Rosengren remains worried that central bank interest-rate cuts are unwarranted and could destabilize the financial sector -- but signaled he's open to action if convinced the economy was taking a turn for the worse.

In an interview on Bloomberg's television network on Monday, Mr. Rosengren reiterated his view that the economy is doing pretty well and also doesn't need cheaper short-term borrowing costs. Mr. Rosengren was one of two central bank officials that opposed the Fed's late July rate cut.

The central bank lowered its target-rate range by a quarter-percentage point to push back against rising, but unrealized, concerns about risks due to slowing global growth and trade conflicts. The Fed also eased due to inflation coming in persistently below its 2% target.

Mr. Rosengren's comments Monday indicate his position hasn't changed.

"We have to be careful not to ease too much when we don't have significant problems," he said. "We are supposed to focus on unemployment and inflation in the United States and so I think we are in a pretty good spot right now and there are costs to easing at a time when you don't need to ease."

Mr. Rosengren continues to worry that cheaper borrowing costs could cause more risk-taking at a time when corporate borrowing levels are already high. At the same time, he said the Fed can't really fix weakness in other countries with lower rates here.

Mr. Rosengren said that much of the concern about recession risks is being driven by financial markets. He said low bond yields in the U.S. largely reflect foreign, and not domestic worries. He also said that while stock prices have been volatile, they haven't really lost much ground.

Mr. Rosengren contrasted the pessimism of markets with the view of economists, who still largely expect continued growth. Amid rising market bets that the Fed will lower rates, Mr. Rosengren said, "I don't see a lot of need to take action" with rates right now.

But the central banker noted that now was an unsettled time to take stock of the outlook and that limits the guidance he and the Fed can provide.

"This is a time to be very focused on the data, not to give a lot of forward guidance, but be pretty clear about what is going to cause us to change our rates," Mr. Rosengren said.

The veteran Fed official also noted that during the financial crisis, he was one of the Fed's most steadfast supporters of lowering rates. And he's willing to change his view if that is what the data indicates.

"If the economy is slowing sufficiently and I'm worried about the unemployment rate going up that would be circumstances where I'd actually want to ease," Mr. Rosengren said.

Write to Michael S. Derby at michael.derby@wsj.com

  (END) Dow Jones Newswires
  08-19-19 1600ET
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