Fed’s Rosengren Makes the Case for Higher Rates, Warns Asset Markets Might Become “Too Ebullient”

Rosengren was smoking the good stuff before today’s speech, where he said, with a straight face, the Fed should start hiking rates or risk hurting the economy because it was overheating. Lolz.

Maybe he should take another gander at the ISM data?

He added that “a failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”

Continuing.

“My personal view, based on data that we have received to date, is that a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy.”

Overall, Rosengren sees the silver lining where others might see weakness. He is warning of asset bubbles, most likely to be found in real estate and stocks, suggesting that if the Fed fails to take away the punch bowl now, all of you stupid little fuckers out there might get drunk and crash into ravines.

“I expect some continuing drag from foreign activity,” Rosengren added. “But underlying domestic strength is likely to be sufficient to engender continued improvement.”

Commenting on risks to the outlook, Rosengren noted the presence of global concerns but said that “market indicators have so far provided little evidence of outsized risks.”

However, Rosengren cautioned that an overheated economy – one that significantly exceeds sustainable output and employment – would pose risks to maintaining full employment over time.

History shows the difficulty of slowing the economy to a sustainable rate without going too far and causing a recession.

Rosengren noted that waiting too long to tighten could lead to conditions that require more rapid increases, risking a more pronounced slowing of growth and rise in unemployment. It may also allow some asset markets to “become too ebullient,” and he reiterated previous concerns over commercial real estate prices.

“The risks to the forecast are becoming increasingly two-sided, in my view,” Rosengren explained. “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.”