By Greg Robb, MarketWatch
Bloomberg Enlarge Image
Boston Fed President Eric Rosengren said Friday he backed gradual interest rate hikes, saying that waiting too long risks some asset markets like commercial real estate “become too ebullient.”
“My personal view, based on data that we have received to date, is that a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy,” Rosengren said in a breakfast speech to the South Shore Chamber of Commerce in Quincy, Massachusetts.
Rosengren, a voting member of the Fed policy committee this year, refrained from discussing exactly when he thought the Fed should move.
The Fed has three meetings left this year: Sept. 20-21, Nov. 1-2 and Dec. 13-14.
A majority of economists surveyed by the Wall Street Journal expect the Fed to hold off raising rates until December.
And financial markets are pricing in only a one-in-four chance of a rate hike at the next meeting on Sept. 20-21. Markets are watching closely a series of speeches over the next few days for signals of a possible move this month.
In his remarks, Rosengren said commercial real estate prices adjusted for inflation “have risen quite rapidly over the past five years, especially for multifamily properties.”
“Because commercial real estate is widely held in the portfolios of leveraged institutions, commercial real estate cycles can amplify the impact of economic downturns as financial institutions need to write down the value of loans and cut back on lending to maintain their capital ratios,” he said.
This means that the risks to the economy are becoming balanced, or “two-sided,” he said.
With risks to the upside from asset purchases, there are also “downside” risks from global weakness, he said.
Fed officials have refrained all year from describing the risks to the outlook as balanced in their policy statements. The last time that the statement said risks were balanced was last December when the central bank hiked interest rates by a quarter percentage point.
Rosengren said the economy has been “relatively resistant to shocks from abroad of late.” And he said that concern with fragile global economies “does not seem to be strongly prices into financial assets, at least to date.”