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'Hike rates in face of tight labour market'

This article is more than 12 months old

MONTREAL The US Federal Reserve must respond to "very tight" US labour markets by gradually raising interest rates or risk halting the economic recovery, a hawkish Fed official said.

In prepared remarks that largely restated his views, Boston Fed president Eric Rosengren said he expects the labour market to improve more after US unemployment dropped to 4.2 per cent last month, its lowest level since 2001.

"Prudent risk management would argue for the continued gradual removal of monetary policy accommodation in order to minimise the risk of outcomes that might prematurely shorten the current economic recovery," said Mr Rosengren, who was speaking at the International Atlantic Economic Conference in Montreal, Canada.

He added that he expects the US economy will likely continue to grow above its potential.

"Failing to respond to very tight labour markets with rates remaining negative in real terms could potentially risk unnecessarily shortening the economic recovery," added Mr Rosengren, who does not vote on policy this year but whose views often foreshadow overall Fed policy.

The Fed has raised rates three times in less than a year and is expected to hike again in December. Below-target inflation has caused some more dovish Fed policymakers to want to wait. 
- REUTERS

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