Stronger U.S. Economy May Warrant ‘Restrictive’ Rates: Boston Fed’s Rosengren

By Anthony B. Sanders

Consumer Credit Growth Slowing With Fed Fund Rate Increases

Now that the US economy is stronger, Boston Fed’s Eric Rosengren wants to  raise rates. Again.

BOSTON (Reuters) – When Boston Federal Reserve Bank President Eric Rosengren switched from advocating low interest rates to tighter monetary policy, he argued it was time to start crawling back toward “normal” rates even with 5 percent unemployment and weak growth and inflation.

Two years later, Rosengren has joined colleagues in beginning to lay the groundwork for those rate hikes to potentially continue longer and to a higher level than currently expected as the outlook for the economy strengthens.

Rates may not only need to become “restrictive,” but the definition of that may be moving up as well, Rosengren said in an interview with Reuters on Saturday following an economic conference here.

“This is not hair on fire. There is upward pressure on inflation, and given that we are already at 2 percent, labor markets are already tight … that is going to be a situation where we start persistently having inflation above what our target is,” Rosengren said. “There is an argument to normalize policy and probably be mildly restrictive.”

The Fed maintains a 2 percent inflation target, which it is only now reaching after a decade struggling to consistently hit and maintain it.

Yes, it has been a long, hard road to get to 2% core inflation … again.

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But here is the problem. Consumer credit YoY is slowing quite rapidly with increases in The Fed Funds Target rate.

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