Eric Rosengren

Speaking before a local chamber of commerce, Boston Fed President Eric Rosengren today reiterated his support for a gradual tightening of monetary policy now that the labor market has tightened and the inflation rate slowly returns to the Fed’s 2 percent target.

Rosengren told the South Shore Chamber of Commerce in Quincy, Massachusetts that “a failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”

According to prepared remarks, Rosengren also acknowledged recent conflicting signals in economic data over the summer, including real GDP growth in the first two quarters that he characterized as “disappointing,” but he said that reflects temporary inventory adjustments that are likely to be reversed.

On the flipside, Rosengren pointed to strong payroll employment averaging just over 200,000 net new jobs per month over the past year and said that most forecasters are anticipating a tightening labor market and declining unemployment through the fall.

He also echoed concerns he previously expressed about the impact of the continued low interest rate environment on commercial real estate in particular. Late last month, speaking at a conference in Beijing, Rosengren noted rapid price appreciation in the CRE sector and said that if the U.S. economy were to weaken, declining occupancy rates and rents could ultimately lead to big losses at leveraged firms.

Today in Quincy, he warned that waiting too long to normalize monetary policy could also have deleterious effects on the economy.

“The risks to the forecast are becoming increasingly two-sided, in my view,” Rosengren said. “Weakness emanating from abroad poses short-term downside risks to the domestic U.S. economy,” yet there are also “longer-term risks from significantly overshooting the U.S. economy’s growth.”