Global and U.S. economic growth may be slipping and force the Federal Reserve into a more gradual course of rate hikes than officials currently expect, Boston Fed president Eric Rosengren said on Wednesday.
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Calling the Fed's first-in-a-decade rate hike in December "uneventful" so far, Rosengren said much of the news since then has not been good.
The rout in China's stock market, weak oil prices and other factors are "furthering the concern that global growth has slowed significantly," Rosengren told the Greater Boston Chamber of Commerce. In addition, end-of-year gross domestic product estimates for the United States are "raising the possibility that domestic growth could be slowing."
Combined with continued weak readings on inflation, it means the Fed may have to slow the expected pace of rate hikes, which officials in December projected at four quarter-point increases over the coming year.
"While monetary policy should not overreact to short-term temporary fluctuations in financial markets, policy makers should take seriously the potential downside risk to their economic forecasts and manage those risks as we think about the appropriate path," Rosengren said. "These downside risks reflect continued headwinds from weakness within countries that represent many of our major trading partners, and only limited data to support the projected path of inflation to target."
A second hike will face a strict test, said Rosengren, who votes on the Fed's rate-setting committee this year.
"Further tightening will require data continuing to be strong enough that growth will be at or above potential, so that Federal Reserve policymakers can be confident that inflation will reach our 2 percent target."
Rosengren is the second Fed official this week to suggest that international conditions, and specifically doubts about China's economic growth and continued weak inflation, could be tugging the Fed's expected path of rate hikes downward.
On Monday Atlanta Fed president Dennis Lockhart said he did not think there would be enough new data in hand to make a decision on a second hike until at least April, in part because of China's effect on U.S. equity markets.
(Reporting by Howard Schneider in Washington and Svea Herbst-Bayliss in Boston; Editing by Chizu Nomiyama)