Boston Fed President Eric Rosengren said in a speech that “the most likely outcome for 2019 is relatively healthy U.S. economic growth somewhat above 2 percent over the course of the year, with inflation very close to Fed policymakers’ 2 percent target, and a U.S. labor market that continues to tighten somewhat.” But he also warned that “policymakers cannot place complete faith in what they believe is the most likely outcome”.
US growth would slow due to “diminishing fiscal stimulus” and the “effects of four increases” in interest rates last year. But to Rosengren, growth above 2% would still be “sufficient to bring additional improvements to labor markets, without much risk of higher inflation”, which is a “very welcome outcome”. He also noted “some risk that more pronounced slowdowns in the rest of the world could dampen U.S. growth more than I am forecasting.”
Meanwhile, there is “less reason to fear overheating”, with “somewhat greater risks to the outlook”. That justifies a pause in recent monetary tightening cycle. And, “yt remains to be seen whether the few signs of weakness at the turn of the year reflect an underlying slowdown in the economy, or a response to a variety of temporary concerns that may fade.” It may be “several meetings” of FOMC before “Fed policymakers have a clearer read on whether the risks are becoming reality – and by how much the economy will slow compared to last year.”
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