Boston Fed President Eric Rosengren spoke today at the National Association for Business Economics (NABE) 60th Annual Meeting in Boston, MA. Here are the top takeaways from his talk.

Expects labor market that continues to tighten

Rosengren expects economic growth to be strong enough in the second half of the year to further push down the low, 3.9 percent unemployment rate.

Despite risks from abroad, Rosengren believes “the most likely outcome will be a U.S. labor market that continues to tighten and the likely buildup of economic imbalances, including, but not limited to, inflationary pressures.” 

Examining the data on the labor market’s tightness, Rosengren suggest that the forecast of an unemployment rate “well below” its estimated long-run sustainable level for a significant period of time is a sign of a macroeconomic imbalance that “poses a risk of rising inflation or increasing financial stability concerns – or both.”

Pushing economy too hard risks inflationary concerns or financial-stability risks

“Pushing the economy too hard,” Rosengren notes, risks inflationary concerns or financial-stability risks.  Either of these outcomes might necessitate a more forceful monetary policy response by the Fed, putting at risk the continued expansion.

“The history of rapid rate increases in the U.S. suggests that such a risk is real, and as a result my preference for a strategy that allows a continued, but gradual, pace of monetary tightening,” he said.

Continuing to raise short-term rates gradually likely appropriate and beneficial over long term

Rosengren considered a number of global risks, including tariffs, problems in emerging markets, and a potentially disruptive Brexit. “If they do not materialize and disrupt strong U.S. GDP growth, I believe that continuing to raise short-term rates gradually, until monetary policy becomes mildly restrictive, is likely to be appropriate and beneficial over the long term.”