With little evidence the U.S. economy is rebounding after a very weak first quarter, the Federal Reserve is in no position to start raising interest rates for the first time since 2006, a top Fed official said on Monday.
"The conditions for beginning the tightening of monetary policy have not yet been met," Boston Fed President Eric Rosengren said in remarks prepared for delivery in Hartford, Conn.
The Fed has said it will raise rates only once it sees further improvement in the labor market, and is reasonably confident that inflation is headed back to the Fed's 2-percent target.
But with growth in the first-half of the year likely to run below the economy's potential of about 2% growth, "I do not expect to see timely improvements in the unemployment rate and sufficient progress toward the 2% inflation target," Rosengren said. "This, in my view, makes a compelling argument for continued patience in monetary policy."
Rosengren's strongly dovish comments come as Fed policymakers prepare to meet in about two weeks to weigh a possible rate hike.
Policymakers have kept interest rates near zero since December 2008, and most, including Rosengren, have long thought they would be able to begin to lift rates this year. Even after the economy's dismal first-quarter performance, policymakers stuck to that view, attributing the slowdown to the effects of a severe winter, and predicting a snapback.
So far there is little sign of such a rebound, Rosengren said. That should get policymakers thinking about whether consumers may be behaving differently since the financial crisis, spending less and saving more than they have in prior recoveries, he said.
And in any case, he noted, the Fed has typically launched past tightening cycles against the background of much stronger growth than seen currently.
"The data have disappointed before, and an appropriately data-dependent monetary policy requires confirmation in the numbers, not just in forecasts of better times," he said.
Rosengren is not a voting member this year on the U.S. central bank's monetary policy committee.