PORTSMOUTH, R.I. - Another Federal Reserve official pointed to December as an appropriate time to begin raising U.S. interest rates, as Eric Rosengren said on Monday there has been "real improvement" in the economy of late with the October jobs report delivering "very good news."
The confident speech by Rosengren, the dovish president of the Boston Fed, amplified the drum beat in recent days of U.S. central bankers including Fed Chair Janet Yellen preparing the world for the first U.S. policy tightening in nearly a decade.
Rosengren, one of the strongest supporters of policy accommodation since the financial crisis, said it was now reasonable to ask whether the current level of near-zero rates was necessary given he expects the economy to continue expanding at above its potential rate of around 2 percent.
"If we see continued gradual improvement in the U.S. economy, it will be appropriate to gradually increase short-term rates," he told the Newport County Chamber of Commerce, noting it was "possible" to move next month.
A month ago Rosengren had said the Fed should begin a gradual policy tightening before year end. He appeared to reinforce that notion on Monday, saying that the worst of the central bank's concerns from September of an overseas slowdown and market turmoil have not panned out.
He noted that at its policy meeting less than two weeks ago, the Fed specifically pointed to a Dec. 15-16 meeting as a possible date for action. "I would highlight that the data received recently have been positive, reflecting real improvement for the economy," he said.
Next month "could be an appropriate time for raising rates, as long as the economy continues to improve as expected," added Rosengren, who has a vote on policy next year.
Investors globally have increased the odds of a December rate hike after comments last week by Yellen and other Fed policymakers, and especially after a report on Friday showed very strong jobs and wages growth, with unemployment dipping to 5 percent.
Rosengren cautioned that once rates are raised the Fed should proceed cautiously in order to observe how effective some new and lightly tested policy tools are, and to see how the policy affects the real economy.
But he said domestic demand should help offset strength in the dollar and weakness among U.S. trading partners, two factors that have kept inflation below the Fed's 2 percent target.
Notably, he also said the Fed's policy accommodation could prompt investors to take on too much risk. He said a "search for yield" may be seen in the commercial real estate market that has "grown quite rapidly."
(Reporting by Jonathan Spicer; Editing by Meredith Mazzilli)