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Fed’s Rosengren Warns That Rate Hikes May Come Very Quickly

Friday, October 14, 2016 7:57
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Federal ReserveA top official said today that the Federal Reserve may get aggressive with interest rate raises over the next two years, if unemployment and other data keep improving.

Boston Fed President Eric Rosengren said in a CNBC interview this morning that “My own view is that if the unemployment rate falls as much as I’m expecting, then it is possible that we’ll have to raise rates faster than the summary of economic projections.”

Currently, the Fed’s economic forecast sees interest rates around 1% by the end of 2017, and nearly 2% by the end of 2018. Those numbers could rise significantly, however, if the unemployment rate plunges lower. Rosengren thinks that benchmark could fall to 4.5% by next year.

Noting that unemployment trend is probably unsustainable, Rosengren said it may force the Fed’s hand in pushing rates much higher much more quickly than originally imagined.

The Boston Fed head also said that the 10-Year Treasury yield “is roughly at where we think inflation is right now. It is quite a low rate.” He expressed concerns about rates remaining so low for so long as well: “So the fact that long rates are so low, and that there are some sectors of the economy that we’re starting to see very rapid asset growth—like commercial real estate, is a source of concern as people start moving to try to get higher returns because we’ve had low rates for a long period of time.”


The iShares Barclays 20+ Year Treasury Bond ETF (NASDAQ:TLT) fell $0.90 (-0.67%) to $132.56 in Friday morning trading. Year-to-date, the largest ETF focused on long-term U.S. government bonds has gained 9.93%.

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